UK Purchasing Managers’ Index drops to an 8 month low

• Output growth slips even though there is improving demand and job creation
• Price pressures remain high
• PMI dropped to 55.2 (February 2018) from 55.3 the previous month

The UK manufacturing sector continued to slow in the past month and has lost further ground after hitting a 4 year high in November 2017. Consumer, intermediate and investment goods sectors have all seen decelerations in February. One positive was shown by the increase in new orders which was at a faster pace than in January. Companies highlighted that domestic demand was better and new export business was also rising.

Overall UK manufacturers’ outlook remained positive in February. 56% of companies forecast output would be better in 1 years’ time, with only 6% expecting a decline. Ongoing expansion and expected future output growth also boosted job creation in February. Job creation was up for the 19th month in a row. This increased capacity helped to reduce backlogs of work which also dropped in February. Rising demand also underpinned a further increase in manufacturers’ purchasing activity during February. Though the rate of increase in input buying volumes dropped to an 8 month low.

Manufacturers’ have had price increases on a range of commodities and raw materials resulting in average input costs rising fast in February. Customers have had to bear some of this increase in purchasing costs in the form of higher output charges. This increase could feed into rising consumer prices, leading to household spending being further restricted in future months. However there was some good news as rates of inflation on price was slower for February.

Ricky Nelson, currency analyst from Halo Financial commented, “Although it has been reported that manufacturing activity has slowed to an overall 8 month low in February there is some evidence that the sector may be due for a rebound with New orders making their largest monthly gain since November and the fact that the sector is still growing and remains above its long run average.”

Laurence Gavin, manufacturing expert at law firm Irwin Mitchell said, “These latest figures highlight the unpredictable nature of the manufacturing sector in the UK. Although the fall in the output index points to some tough market conditions, it is encouraging to see that many companies have indicated that domestic demand had strengthened whilst export levels have continued to rise. On the ground we are seeing investment at the higher tech end of the sector and the recent commitment by Toyota to build the new Auris model in the UK shows that manufacturing remains an engine for growth.”