Manufacturing sector sees further marked growth during May
The UK manufacturing sector remained resilient in May, sustaining most of the growth momentum gained during the previous month, new data from IHS Markit and the Chartered Institute of Procurement & Supply has revealed.
At 56.7, the seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index was only slightly below April’s three-year high of 57.3, and signalled an improvement in operating conditions for the tenth successive month.
Manufacturing production and new orders both expanded at above survey average rates. Companies benefited most from the continued strength of the domestic market. There was also a solid increase in new export business.
Overseas demand improved due to a combination of the historically weak sterling exchange rate and manufacturers’ efforts to promote and launch new products in foreign markets. The level of incoming new export orders rose for the thirteenth month in a row.
Sector data indicated that solid expansions of production and new orders were seen across the consumer, intermediate and investment goods categories. Output growth was led by the intermediate goods sector, where the rate of increase accelerated to a four-month high. Growth moderated in the other two industries.
The ongoing expansion of the manufacturing sector had a positive impact on both business sentiment and job creation. Optimism regarding the outlook for production levels in one year’s time improved to a 20-month high, with 56% of manufacturers forecasting that output would rise during the next 12 months. Positivity reflected company expansions, efforts to improve market share and marketing strategies.
Employment rose for the tenth consecutive month in May, with the rate of jobs growth the fastest since June 2014. Alongside solid new order inflows and rising business confidence, manufacturers also raised capacity in response to increased backlogs of work. Outstanding business expanded at the fastest rate in more than six years.
Rates of inflation in input costs and output charges remained elevated in May, despite easing further from recent highs. Increased costs reflected the historically weak sterling exchange rate and rising raw material prices. There were also signs of a sellers’ market developing for some inputs, due to supply shortages and an associated lengthening of vendor lead times.
A number of manufacturers noted that they maintained sufficient pricing power to pass on higher costs to clients. Despite easing to a five-month low, the increase in selling prices was still among the fastest seen in the survey history.
Rob Dobson, senior economist at IHS Markit, said: “The strong PMI numbers suggest that the manufacturing sector has gained growth momentum in the second quarter after a sluggish start to the year. The ongoing strength of the domestic market remains the main driver of the upturn. Growth of new export business played a lesser role in comparison, with the trend in foreign demand continuing to improve only in fits and starts, despite the assistance of a historically weak sterling exchange rate.”