The UK manufacturing sector ended 2016 on a positive note with rates of growth for production and new orders in December among the best seen over the past two-and-a-half years.

The Markit/CIPS Purchasing Managers’ Index (PMI) rose to a 30-month high of 56.1, up from 53.6 in November and well above its long-run average (51.5).  Growth of production and new business was broad-based by sector, with strong gains registered across the consumer, intermediate and investment goods industries.

New export business rose for the seventh successive month in December. The rate of growth was the second-highest since early 2014 – companies reported increased levels of new work from the USA, Europe, China, Middle East, India and other Asian markets.

Improved inflows of new business led to a slight increase in backlogs of work in December, the first rise since February 2014. This combination of higher output, new orders and work-in-hand encouraged manufacturers to expand capacity and employment rose for the fifth consecutive month. SMEs saw the steepest expansion of staffing levels.

However, price pressures remained elevated in December – the increase in purchase prices was the eighth in as many months with companies linking this to the weak exchange rate driving up import costs. There was also mention of the rising cost of commodities such as oil and steel. Higher costs were passed on at the factory gate, as selling prices rose for the eighth straight month. Steep increases were seen across the consumer, intermediate and investment goods sectors.

Rob Dobson, senior economist at IHS Markit, which compiles the survey, comments: “The boost to competitiveness from the weak exchange rate has undoubtedly been a key driver of the recent turnaround, while the domestic market has remained a strong contributor to new business wins. A plus point from the December survey was that the expansion was led by the investment and intermediate goods sectors, suggesting capital spending and corporate demand took the reins from the consumer in driving industrial growth forward.”

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