Manufacturing activity slows but remains in good shape

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Manufacturing activity slowed slightly in February, with the PMI indicator falling to a three month low of 54.6. However, this is still well above the 50 no change mark and long run average of 51.6, and represents the seventh successive month of expansion since the post Brexit slump. We can assure you the industry remains in good shape as we enter spring…

Activity levels remain healthy

Manufacturing activity in February was driven by another good month for exports. New export orders rose for the ninth successive month with companies reporting improved sales to clients in key export markets, including the US, Asia and Europe. The prevailing weak exchange rate will have no doubt provided a boost for UK exports, supporting the overall healthy demand conditions we are seeing across the globe, notably in the Eurozone where the PMI hit a 70 month high this month.

Feb-PMI-2 

The continuing impressive performance on the export front offset the slowdown in the domestic market. This unfortunately is likely to be a reoccurring theme, especially as we enter the second half of the year. Rising inflation, fuelled by the fall in pound and rising commodity prices is set to hit consumers’ pockets, dampening their spending in consumer facing sectors in particular.

With the exchange rate set to remain at its new depressed level, rising input costs and the subsequent pressures this puts on margins continues to be the chief concern for manufacturers in 2017.

rising-costs-chief-concern 

Encouragingly however, there is better news from investment intensive sectors. The collapse in investment which was anticipated back in July has failed to materialise. Businesses are busy, activity remains on the up and global economic conditions are fostering a supportive environment for manufacturing. As a result businesses are recognising the need to invest to meet improved demand, despite the uncertain outlook. How long this continues however remains to be seen.

On the whole, todays PMI release is further good news for the manufacturing sector, backing up last week’s GDP figures which saw manufacturing expand by a healthy 0.7 in the final quarter of 2016. With the global outlook remaining supportive, manufacturing should see more of the same for the coming months, supported further by the government's Industrial Strategy.

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Economist

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