UK manufacturing - still got it

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UK manufacturing looks to have had a very good third quarter. The PMI covering the sector, edged down slightly in September but still remained firmly above the 50 no change mark, and posted the second strongest monthly reading since March 2011.

Looking at the components of the index output was UP, orders were UP and employment was UP. All in all, a pretty similar picture to EEF's own Business Trends Survey covering the three months to September.

EEF Business Trends Survey and Markit Manufacturing PMI

Green light for international PMIs

Confirming the manufacturing flash PMIs for September, expansion was confirmed across most of the eurozone. China's manufacturing PMI also held up at just over 50.

However, plain sailing for the world economy was too much to hope for and uncertainty has shifted across the Atlantic as deadlock in the US over the debt ceiling prompts a government shutdown. While the US had revised up GDP growth in q2, weak consumer spending provide a something of an amber warning over the outlook. The effects of the sequestration will add up and could but the brakes on the economy in the final months of the year.

What the data doesn't say

For UK manufacturing surveys and official statistics are pointing to growth. Separately, EEF Economists have been meeting with a lot of real manufacturers in recent weeks, which has also given us some reasons to be cheerful. Happily, companies recognise the shift towards a more positive trend in output and orders and many are reporting better trading conditions than forecast.

In addition, we're hearing more about companies' plans for future growth and what they are doing about them - companies increasing spending in research and development, expansion of product lines and development of new ones; manufacturers taking those new products into new export markets; plans to commit to new investment in people and modern machinery and some plans to bring more of that investment back to the UK from low labour cost economies. Although anecdotal, this starts to build into picture of improving confidence about the medium term prospects for UK manufacturing.

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Chief Economist

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