Consumers hold the fort for UK manufacturing

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Amid global uncertainty, consumer-driven domestic demand remained the backbone of UK manufacturing.

The purchasing managers’ index for manufacturing fell slightly in August but remained in the territory associated with expansion, indicating weaker growth. The main drags were from new export orders, and the output of investment goods.

New export orders fell for the fifth consecutive month, highlighting fears about a sharp economic slowdown in China, the sluggish recovery in the eurozone - which contains key UK trading partners - and the stronger pound hurting the cost competitiveness of exports. Also, the output of investment goods fell further into contractionary territory, suggesting the recent volatility of crude oil prices has discouraged demand in the sector.

On the bright side, new orders rose, largely driven by domestic demand. In addition, the output of consumer goods remained robust. Household spending on consumer durable goods has benefited from recent strong gains in employment along with a pickup in real wage growth.

It’s not clear whether consumers can hold the fort for manufacturing indefinitely. The sub-index for employment contracted for the first time in more than two years, hinting that the best of the job growth could be behind us. Yet the sub-indices for selling and input prices remained weak, suggesting that low inflation will continue to support the purchasing power of consumers.


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