Manufacturing continues to grow solidly despite slowdown

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The Purchasing Managers Index (PMI) released yesterday by Markit/CIPS shows a further slowdown in UK manufacturing for August. The PMI dipped to a 14 month low at 52.5, edging down from 54.8 in July, with any figure above 50 indicating expansion. Manufacturing output and orders have been expanding consecutively for one-and-a-half years but the pace of growth has been easing over the last few months. Likewise, employment in the manufacturing industry continued to rise albeit at a slower rate of growth.

The PMI paints a similar picture to that of EEF's ‘Manufacturing Outlook' which reports continued solid growth in the manufacturing sector but with indicators across the sector coming “off the boil”. On the upside, foreign demand for UK manufactured goods increased for the seventeenth month in a row in August. However, order inflows have improved from countries that comprise a relatively small portion of the UK's trade partner composition. Overreliance on exports to a struggling Eurozone appears to remain the Achilles heel for UK trade, hurting export-intensive industries like manufacturing.

The good news is that the manufacturing sector continues to grow above its long term average (51.5) despite a round of modest data for the past quarter. Geopolitical tensions in Europe were bound to take a toll on both manufacturing output and exports. While there is little the Government can do to tame Putin's aspirations in Ukraine - there is still room for policy-makers to aid UK manufacturing. Diversifying the UK's export base away from the demand-dry Eurozone and towards high growth emerging economies should be a top priority.

A strong manufacturing sector remains crucial towards rebalancing the economy – a key political promise made by the Coalition for which the verdict is still out. The manufacturing sector is slowly but steadily growing to its precession peak and EEF's survey shows positive investment intentions and expectations for the future by UK manufacturers. Given the importance of the manufacturing sector for UK trade and the Chancellor's (overly) optimistic export target there is more the Government can do to create an enabling environment for a sector that accounts for half of all UK exports.

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