Manufacturing activity maintained its impressive momentum into 2017, with the January manufacturing PMI printing at a healthy 55.9. This represents the sixth successive month of expansion since the post Brexit slump, and although slightly down on December’s recording, it’s well above the 50 no change mark and long term average of 51.5.
What’s behind the activity levels?
If it sounds like we are repeating ourselves, I apologise but the narrative behind these figures are a familiar story.
Enduring healthy demand conditions, notably at home, has been the driving force behind the strong performance in output and orders in January. Impressively output rose at its fastest rate since May 2014, as new orders continued to come in at a robust pace.
The export market also paints a good picture, with strong demand from overseas and in particular the Eurozone, where the PMI rose to 55.2 in January, a 69 month high. The prevailing weak exchange rate will have provided a further boost to export competitiveness as the effects filter through into high value sectors, following the initial lag. This trend is set to continue and should provide further export support in the coming months.
This latest PMI recording, is part of a series of recent indicators that all point to manufacturing being in fairly rude health. Last week’s GDP figures provided pleasant reading, with manufacturing expanding by 0.7% in the final quarter of the year and 0.3% as a whole for 2016. This is supported by our own Manufacturing Outlook survey, in which manufacturers, having experienced a strong end to 2016, expect momentum to be carried into 2017 and with it growth in q1.
All in all good news considering the circumstances and where we thought we might be this time 6 months ago…
Cost pressures building...
However (there’s always a however) the concern for manufacturers will be the increasing squeeze on their margins from rising input costs. In the year to December input prices rose by a hefty 15.8%, as the negative effects of the sterling depreciation and rise in oil prices began to emerge in earnest. While manufacturers’ reacted by raising prices (output prices rose by 2.7% ), the pass through to consumers was not complete, illustrating the growing pressures on their margins.
With the pass through to consumers likely to come in the coming months, this represents a growing concern for manufacturers’ and will provide a real test for the resilience of the UK economy.
However the news we’re getting is that manufactures’ are busy busy people at the moment. This is good news and long may it continue