Activity in Britain’s manufacturing sector has eased from a near four-and-a-half-year high, but still stumped up “solid” output and order growth in December.
The closely watched Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) showed a reading of 56.3 last month, down from 58.2 in November, with economists expecting a figure of 57.9. A reading above 50 indicates growth. While output levels from consumer goods producers rolled back, intermediate and investment goods motored ahead thanks to rising demand from overseas.
UK producers enjoyed a healthy appetite from Europe, China, the Middle East and America, helping to drive a further rise in employment.
It means the anufacturing industry churned out an average reading of 57 for final three months of the year – its best performance since the second quarter of 2014. Rob Dobson, director at IHS Markit, said UK manufacturing ended the year on a positive footing.
He said: “Although growth of output and new orders moderated during December, rates of expansion remained comfortably above long-term trend rates. “The sector has therefore broadly maintained its solid boost to broader economic expansion in the fourth quarter. “The outlook is also reasonably bright, with over 50% of companies expecting production to be higher one year from now. “The main growth engines were the intermediate and investment goods sectors during December, suggesting resilient business-to-business demand and capital spending trends, albeit in part due to rising exports.”
Firms were also given a helping hand after input costs rose at the slowest rate for four months. Chemicals, electrical goods, metals and paper were among the products becoming more expensive. Despite sterling’s Brexit-induced slump keeping costs high, around 54% of firms are pencilling in a rise in production for the year ahead.
Samuel Tombs, Pantheon Macroeconomics chief UK economist, said the manufacturing industry will struggle to maintain momentum this year. He said: “UK manufacturers have cut investment since the Brexit vote and are struggling to find skilled workers. As result, work backlogs are increasing quickly and supply chain delays are worsening.
“These constraints will only worsen as the recovery continues, unless manufacturers suddenly ramp up investment. “Meanwhile, the recent rally in oil prices – to 67 US dollars, from just 50 US dollar six months ago – which has been driven by OPEC supply curbs and tensions in Iran, has darkened the outlook for low value-added production. “Accordingly, we expect the recovery in the manufacturing sector to lose its current vitality soon.”
The pound was 0.3% up against the US dollar at 1.35 following the update, and 0.3% lower versus the euro at 1.12. The Office for National Statistics (ONS) confirmed last month that gross domestic product (GDP) grew by 0.4% in its final reading for July to September this year, rising from 0.3% in the first and second quarters.
However, the UK economy is still struggling to bounce back to levels seen in the final quarter of 2016 – when GDP rose by 0.6%. Howard Archer, chief economic adviser to EY ITEM Club, said: “With December and November surveys from both the purchasing managers and the CBI also robust, the manufacturing sector looks likely to have produced another robust performance in the fourth quarter after expanding 1.3% quarter-on-quarter in the third quarter.”