The UK manufacturing sector remained solid at the end of the first quarter of 2017, with the Markit/CIPS Purchasing Managers’ Index. recording 54.2 in March (54.5 in February) having remained above the neutral mark of 50.0 for the eighth successive month.
The latest PMI reading compared favourably to its long-run trend (51.6) although sector data suggested a slowdown centred on consumer goods producers, with the pace of output growth in the sector only modest. In contrast, the intermediate and investment goods sectors both registered substantial and accelerated rates of increase.
UK manufacturers continued to benefit from solid inflows of new business. Part of the increase came from further growth of foreign demand and the outlook for the sector remained positive, with business optimism rising to a ten-month high – almost 52% of companies forecast increased production in 12 months’ time, compared to only 6% anticipating a decrease.
The ongoing upturn and positive outlook at manufacturers encouraged firms to expand employment during March. Headcounts rose for the eighth month running, with the pace of jobs growth at its fastest in almost a year-and-a-half. Employment increased at both SMEs and larger-scale producers.
Rob Dobson, senior economist at IHS Markit, comments: “The domestic market remained the primary source of new business wins for manufacturers. The boost to export demand from the historically weak sterling exchange rate also played a role, albeit to a lesser degree than in recent months.
“The impact of the exchange rate is still being keenly felt on the cost side. Although purchase price inflation moved further from January’s record high, it remained among the steepest recorded in the 25-year survey history.
“The pass-through of these costs means selling price inflation remains stubbornly high. Inflation hawks at the Bank of England will be keeping a close eye on these price pressures to see if they remain contained or begin to pose a greater risk to consumer prices, and consumer spending, in the medium term.”