Manufacturers' momentum slackens amid '˜mixed outlook'

Britain's manufacturers recorded their 14th straight month of rising production in September, but it was down on four-year highs seen in August as rising costs continued to take their toll.

Factories enjoying solid demand from domestic and overseas markets. Picture: Andrew Milligan/PA Wire

The closely-watched Markit/CIPS UK manufacturing purchasing managers’ index (PMI) showed a reading of 55.9 last month, down from 56.7 in August and coming in below economist expectations of 56.2. Any figure above 50 denotes growth.

Companies reported “solid” demand from both domestic and overseas markets, but IHS Markit director Rob Dobson said rising cost pressures are likely to impact company ­profit and could disrupt production in the short term.

He said that the sector was being buffeted by rising cost inflation due to higher commodity prices and higher import costs from the historically weak sterling exchange rate since last year’s Brexit vote.

“Those factors are being exacerbated by supply-chain capacity constraints and input shortages. This will likely exert further upward pressure on prices, dent profitability and potentially disrupt production schedules in coming months,” Dobson said.

“Although it looks as if the sector made solid progress through the third quarter as a whole, the growth slowdown in September is a further sign that momentum is being lost across the broader UK economy.”

The weak pound was ­cited by some firms for helping to boost exports, though its impact is now being felt less than it was earlier this year. Howard Archer, chief economic advisor for the EY Item Club, agreed that the latest survey pointed to a loss of impetus in the sector – which accounts for 12 per cent of GDP – after what was seen as a healthy summer for manufacturers.

“The outlook for manufacturing appears somewhat mixed as a promising export environment is countered by challenging-looking domestic conditions,” he said.

He added that the increasing price pressures were likely to fuel expectations that the Bank of ­England could raise interest rates next month.

The latest survey found optimism is still relatively strong among manufacturing firms, with more than 51 per cent expecting production to rise over the coming year, reflecting international expansion efforts, efficiency drives and fresh investment plans.

Although job creation slowed from August’s three-year high, it was described as “broad-based”, spanning the consumer, intermediate and investment goods industries.

Andy Hall, Head of Corporate Banking, Barclays, Central Scotland comments on the latest PMI figures: “Although slightly down from August’s high, manufacturers continue to report healthy order books and encouraging levels of new investment and employment keeping output in positive territory last month.

“Yet, at a time when we are seeing the fastest pace of innovation in technology there has ever been, it’s frustrating to see manufacturing still stuck in a period of low growth.

“The benefits of a weak sterling and an improving global economy may not amount to much for the sector unless it invests more to improve efficiency and ramp up capacity.

“With cost pressures remaining elevated and margins being increasingly squeezed, it’s only a matter of time before manufacturers raise prices which will likely impact the domestic demand that has been fuelling growth in the sector.”