7 takeaways from August's Manufacturing PMI

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Today we got some good news with regards to the health of UK manufacturing, in the form of August’s PMI reading. Here are our 7 takeaways from today’s release.

1) Manufacturing activity accelerated in August

The manufacturing PMI rose to a healthy 56.9 in August – a 4 month high and its second highest level in over three years.

August-PMI  

2) Strong demand from overseas is boosting the sector

Although the rate of improvement in foreign demand eased from July’s near-record high, it remained among the strongest seen in the survey’s history. This is unsurprising given the healthy PMI readings seen across the globe, with all of the UK’s key trading partners recording impressive readings. Honourable mention must go the eurozone however, where the overall manufacturing PMI climbed to 74 month high. The healthy activity levels we are seeing across the bloc are in line with the eurozone’s business climate indicator, which continued its upward trajectory last month.

EZaugustPMI 

This improved global demand is translating into strong export orders for UK manufacturers, with the weak level of sterling also proving a supportive boost.

 

3) These buoyant trading conditions are leading to more jobs

The upturn in activity in the manufacturing sector is unsurprisingly encouraging manufacturers to take on more workers. Indeed, August saw the thirteenth straight month of job creation in the sector, with the rate of increase the quickest since June 2014.

 

4) And it’s a similar story with investment….

...with rising demand, new product launches and improved global demand leading to an increase in investment spending.  

 

5) All of which has led to confidence improving

The business optimism indicator rose to a three month high in August. Encouragingly, respondents to the survey believe current conditions will be maintained, with over half of companies expecting output to be higher in one years time, compared to less than 7% that forecast a decline. This is a far cry from this time last year, remember that little thing called the EU referendum…?

 

6) But what about prices?

The only negative in today’s release came in the survey’s purchase price inflation data, which accelerated for the first time in seven months – a likely result of the further depreciation in sterling we saw in light of the snap general election. However, the overall rate of increase remained well below the record high seen at the start of the year, and whether this has any tangible effect on the MPC and their interest rate setting remains to be seen. Watch this space…

 

7) The outlook for the second half of the year looks better

After manufacturing’s weak second quarter, in which it contracted by 0.6%, we have seen two consecutive months of improving PMI readings. While this does not immediately translate itself into better growth figures, the fact the weakness last quarter was concentrated in a few sectors and not broad based, as well as the good news we are hearing on the ground from our members, suggests we should see an improvement next quarter in the official figures.

 

And you can read more about the current state of UK manufacturing in our 2017q3 Manufacturing Outlook report, out on Tuesday 5th September

 

Author

Economist

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