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UK Factory Growth Remains Strong in May

20 Jun 2017 03:06:56

Britain’s manufacturing sector has continued to shrug off the effects of an impending Brexit by posting further significant growth for the month of May, building on the impressive growth found in April.

At least, that’s according to Markit’s PMI for May, which found that UK factory growth was close to the three-year high witnessed in April. According to Markit, the UK manufacturing PMI sat at 56.7 in May. That’s down a little from the 57 seen in April, but it remains far above the 50 reading which indicates no change.

The report also fins that output and new order growth remained solid for May, indicating that the UK’s manufacturing sector is still benefitting from the depressed value of sterling as we enter the summer months and Brexit negotiations. However, some economists have suggested this was to do with a global upturn, rather than anything to do with currencies.

Optimism in the sector regarding the outlook for production levels in a years’ time rose to a 20-month high, as factory bosses indicated that a “solid increase” in new export business was expected.

Employment in the nation’s factories also rose for their tenth consecutive month, hitting a 20-month high as the sector tacked on new workers to deal with expanding output.

One of the major issues threatening manufacturers over recently months has been the increased cost of imports due to the weak pound and high cost of raw materials. These continued to remain elevated, but they eased slightly from recent highs, giving manufacturers some much needed breathing room.

“The survey also provided positive signs that the upturn may be sustained, as growth of new orders remained solid, backlogs of work rose at the quickest pace in six years and business optimism improved to a 20-month high," said Rob Dobson, senior economist at IHS Markit.

Chris Leyland, an analyst at investment firm True Potential said that factory bosses face some pressures still though, saying: “Today’s figure is above 50, meaning expansion is still happening, it’s just that the rate has slowed compared to last month. There are a number of reasons for that, mostly stemming from the weaker pound pushing up import cost for factories and therefore prices for the end consumer. It also means consumers have less disposable income, because their food and fuel bills have risen. The price of oil has also increased, leading to higher fuel costs for manufacturers.

“The key will be exports, because the weaker pound means factories may receive more orders from abroad, which could offset some domestic pain.”

For BSP pipe fitting manufacturers like ourselves, the picture remains mixed. Whilst a strong overall manufacturing sector is good for everyone, it masks some of the inequalities in growth around the sector, namely the strength of the pharmaceutical and automotive industries.

Indeed, it’s only a matter of time before the high cost of materials is passed on to the consumer, boosting inflation and harming the wider economy. These are issues which have to be addressed by a new government, and we eagerly await to hear what plans are being put in place by the major parties.

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