According to findings from The Markit/CIPS UK Purchasing Managers Index (PMI) survey, UK manufacturing sector growth reached a two-and-a-half year high in December 2016 with demand for goods increasing at home and abroad. A headline reading of 56.1 was the highest since June 2014 and a welcomed improvement on the 53.6 posted in November 2016.
A weak exchange rate in the aftermath of the Brexit vote which has seen the pound fall 17% against the US dollar and 14% against the euro, has been identified as the key driver behind the surge in new business volume. While the domestic market remains a strong contributor to the order books of manufacturers, the attractiveness of British goods to international markets such as the US, Europe, China and India is undeniable.
Employment in the UK manufacturing sector also rose for the fifth consecutive month as organisations strived to cope with growing production levels, with SME’s in particular looking to increase staff numbers. Although larger producers recruited on a more moderate scale, UK manufacturing sector employment accelerated at its highest pace for over a year.
Despite Britain’s manufacturing industry and economy as a whole, performing better than expected following the EU referendum; there are a number of causes for concern. Firstly, the aforementioned weak exchange rate is truly a double-edged sword for UK-based manufacturers. While demand in international markets for cheaper British exports flourishes; manufacturing rates of inflation are among the highest in the survey’s history. As a result, consumer spending is predicted to take a hit as factories are under pressure to increase selling prices.
Caution is also advised due to a lack of consistency between PMI survey results and recent figures released by the Office for National Statistics (ONS) which revealed a 0.9% fall in UK manufacturing output in October 2016.
All things considered, the UK manufacturing sector begins 2017 on steady ground. However, with rising inflation rates likely to trigger a downturn in consumer spending and an upsurge in oil and steel prices; great challenges are ahead.
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