Mixed Picture As Demand And Job Creation Improve

The UK manufacturing sector continued to slow in the past month and has lost further ground after hitting a four 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. Over half (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 eight 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.

Expert Opinion

“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.”
Laurence Gavin - Partner

Ricky Nelson, currency analyst from Halo Financial commented:

“Although it has been reported that manufacturing activity has slowed to an overall eight 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.”