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UK Manufacturing Enjoys Remarkable December

There’s no doubting that for UK manufacturers, 2016 was a – shall we say – interesting year. What began under a cloud of Brexit uncertainty turned to shock as June’s vote to leave the EU rocked the industry. What followed was a sharp increase in export orders, thanks to a devalued pound. In turn, that meant high employment numbers.

All good news then, but economists remained worried about the state of the manufacturing industry going in to 2017. With investment in the UK manufacturing down and the costs of buying materials from abroad rising sharply.

As such, it’s come as a pleasant surprise to find that new figures from Markit/CIPS have found that during December 2016, British manufacturing growth rose to a two and a half year high, fuelled by new orders from abroad.

Off the back of these new orders, the manufacturing PMI rose to 56.1, high above the 50 reading which indicates no change. That’s the fastest growth since June, 2016, and handily beats out November’s strong reading of 53.6. An independent poll of economists in Routers suggested that December would post a number of 53.1.

Markit found that though domestic and export orders grew within the month, so did the cost pressures that factories are facing – thanks largely to the devalued pound. The weakness of the pound has caused significant issues in sourcing parts and materials from overseas, and economists are suggesting that these price rises are going to feed in to consumer prices during 2017.

However, businesses like ours who produce stainless pipe fittings and NPT fittings don’t rely greatly on parts of machinery from overseas, leading to a net benefit for our business.

Rob Dobson, Senior Economist at Markit, said: “The UK manufacturing sector starts 2017 on a strong footing. The headline PMI hit a two-and-a half year high in December, with rates of expansion in output and new orders among the fastest seen during the survey’s 25-year history.

“Based on its historical relationship against official manufacturing output data, the survey is signalling a quarterly pace of growth approaching 1.5pc, a surprisingly robust pace given the lacklustre start to the year and the uncertainty surrounding the EU referendum.

“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.

On the prices front, higher input costs continued to feed through to increased selling prices, with rates of inflation remaining among the highest seen during the survey history. Of the companies citing a cause of higher costs, 75pc linked the increase to the exchange rate.”

For all the talk of the weakened sterling, however, December’s numbers prompted the pound to rebound to its highest value in two weeks, alongside the FTSE100 rising to its highest all time level of 7,205.21.

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