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UK Manufacturing Grows in January

Coming in to 2016, it’s fair to say that the outlook for UK manufacturing wasn’t as bright as it might have been in the second quarter of 2015. A turbulent end to the year in overseas markets, particularly China, ensured that our manufacturing industry entered yet another period of instability. Tellingly, George Osbourne talked of a ‘cocktail of risks’ that could affect the British economy last month, rather bold language for a man who had spent the previous year speaking of a strengthening economy.

Now, it would appear that UK manufacturing hadn’t got that particular message, because the industry has posted stronger than expected growth for January, enjoying a pick-up in activity despite the global economy and the sector shedding jobs.

The numbers came from the Markit Purchasing Managers’ Index, a closely watched measure of manufacturing. For January it managed to beat expectations and rose to a three-month high, hitting 52.9, up from the 52.1 seen in December and soaring about the 50 mark which separates growth from shrinkage. A Reuters poll had previously found that economists forecast a slowdown, suggesting a reading of 51.7.

“The UK manufacturing sector registered an uptick in its rate of expansion at the start of 2016, shrugging off a number of potential headwinds, ranging from global financial market volatility to localised flooding in the north of the country,” said Rob Dobson, a senior economist at the survey compilers Markit.

However, it’s far from champagne news for British manufacturing, because exports fell during the same period thanks to the burgeoning economic struggles in Asia, as well as decreased orders from the Eurozone, which dropped to 52.3 from the 53.2 seen in December. The growing strength of British manufacturing came from an increased domestic demand rather than any increased confidence around the globe, which is bad news for the sector in general. Their report also shows that whilst growth at large manufacturers was good, the same couldn’t be said for small and medium sized businesses, where growth was described as ‘mild’.

“The domestic market remains the key growth driver. In contrast, the trend in new export orders continues to disappoint, falling back into reverse gear in January. Even after recent easing in the exchange rate, a number of manufacturers are still finding that the strength of the pound against the euro is impacting order inflows,” said Mr. Dobson.

Clearly then, it’s far from job done in regards to the future stability of the UK manufacturing industry. Indeed, an EEF report in December predicted that British manufacturers would shed thousands of jobs next year as they deal with an increasingly tough export market. They also said that the recession seen in the industry in 2015 would not repeat in 2016.

So far in 2016, that’s proven to be the case, but with 11 months still ahead of us and as yet unforeseen circumstances to come, there are no sure bets.

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