UK manufacturing feels the pressure of weaker sterling

Added 1st December 2016

Sterling weakness continued to rock the United Kingdom manufacturing sector in November as further upward pressure on input costs hit home, but demand remained strong.

UK manufacturing feels the pressure of weaker sterling

Data from Markit/Chartered Institute of Procurement & Supply revealed that new orders continued to pour in from the US, mainland Europe and the Middle East, as well as domestically, encouraging new product launches and the pace of expansion in the sector.   

Conversely, UK manufacturers continued to feel the sting from a weaker pound in terms of input costs. Average purchase prices rose at a pace close to October’s record breaking speed and was one of the fastest raise in prices in the history of Markit/CIPS survey.

The strong inflation of input costs trickled down to clients as well, with output charges rising for their seventh consecutive month. The output rate of increase also came close to matching October’s 64-month record, the Markit/CIPS survey reported. 

“Scratching beneath the surface of the data shows that rising consumer demand and business-to business spending is helping manufacturing to grow at a robust clip,” IHS Markit senior economist Rob Dobson surmised. “However, the trend in new orders for investment goods such as plant and machinery has eased sharply so far in the fourth quarter, and will need to improve if investment is to continue to contribute positively to economic growth.”

Ultimately, the positive and negative effects from the fall in sterling contributed to “a robust set of results in November,” added CIPS group CEO David Noble, “albeit at slightly weaker rates than the previous month.”

The Markit/CIPS Purchasing Managers’ Index was at 53.4 during November, which was above the long-run average (51.5) but still down from September’s 27-month high.

Employment throughout the sector also increased for the fourth-month running, with mid-sized firms experiencing the sharpest job growth.

Judging from the November data, KPMG head of manufacturing Stephen Cooper said "Christmas seems to have come early for global manufacturing."

"Although UK manufacturing growth felt a slight chill in November, the Christmas bells are ringing for a positive end to the year as the sector looks set to contribute to economic growth for the fourth quarter. Globally, the picture looks positive as well with the Eurozone, US and Japan all posting positive results." 

However, he cautioned that this was still a period of uncertainty for the UK manufacturing sector.

“Given that the order book growth has dropped markedly since September, these higher costs may offset the positive effects of the exchange rate,” said Cooper. “In this climate of great uncertainty, manufacturers must, as always, keep a tight control of their cost base.”

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