Today’s PMI figures confirm the resilience of the UK’s manufacturing sector in the face of uncertain global economic conditions. The PMI jumped to 53.0 in January from December’s 52.7 extending its run to 23 consecutive months of growth. The UK PMI release came in contrast to recent data that showed US Q4 GDP data coming below consensus and Chinese PMI retreating to 49.0.
Domestic market the driver
The domestic market was once again the main driver of growing manufacturing activity with both output and orders edging higher following a more subdued end to 2014. Output grew strongly for both intermediate and investment goods albeit consumer goods output flattened.
The survey cites the falling trend in purchasing costs as the biggest mover with the slump in oil prices causing the steepest drop in input costs since May 2009. There are also signs that lower input costs are feeding through to output prices with companies reducing selling prices for only the second time in the past five years.
Up until now the trend has been one of maintaining output prices despite falling input costs in an effort to rebuild hard-squeezed margins since the recession. Nevertheless, the rate of decline in output charges remained significantly lower than that for input costs.
But foreign demand improves too
Perhaps more surprisingly there was also a modest increase in overseas demand. The registered increase in new export order volumes was the first substantial improvement in 5 months. Companies reported an increase in demand from France, Germany, Japan, the Middle East, Poland and the USA.
This is encouraging given increasing uncertainty in the global economy from the middle of last year. It shows flexibility on the part of manufacturers to capitalise on established export markets as well as chase new deals in markets with high growth potential in Eastern Europe and the Middle East.
Still, risks to growth remain tilted on the upside with renewed troubles in the Eurozone identified as a particularly acute risk. British manufacturers have so far managed to navigate their way through an increasingly risky environment with growth in 2014 being the highest since 2010. With 2015 poised to be an eventful year for the global economy, British manufacturing will need to maintain its resilience and flexibility in order to maintain its expansionary path.