Manufacturing sees ‘mild improvement’ but Brexit uncertainty weighs on forecasts

Britain’s manufacturing sector saw a “mild improvement” in September, though companies say Brexit uncertainty has put industry forecasts in doubt.

The Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) showed a reading of 53.8 last month, lower than the 53.0 in August – which itself was revised up from an original reading of 52.8.

Economists were expecting a reading of 52.5 for September.

A figure above 50 indicates growth.

Manufacturing PMI has now been above the neutral mark for 26 months.

The survey indicated that expansion was logged across all the consumer, intermediate and investment goods sub-sectors, with output growth linked to new business, rebuilding inventories and efforts to clear work backlogs,

It helped the PMI reading rise at its fastest pace in four months.

The survey showed new orders from both the domestic and foreign markets improved, with overseas demand having recovered from a “solid contraction” in August.

Companies reported higher sales to the likes of the US, Europe, Canada, Scandinavia, and Russia.

Employment also increased, with jobs growth at small and medium-sized businesses offsetting further cuts at large-scale firms.

However, input costs rose at their quickest pace since June, due to higher price tag across electronic components, energy, food products, metals, paper, plastics, resins and timber.

The foreign exchange rate also played a part in higher costs, alongside supply shortages and global inflationary pressures.

Rob Dobson, director at IHS Markit which compiles the survey, said: “September saw a mild improvement in the performance of the UK manufacturing sector.

“Domestic market demand strengthened, while increased orders from North America and Europe helped new export business stage a modest recovery from August’s contraction.

“Business confidence also rose to a three-month high.”

The survey showed that more than 53% of companies expect production to increase over the next 12 months.

“Despite these causes for short-term optimism, conditions in manufacturing are still relatively lacklustre overall,” Mr Dobson said.

“Many UK manufacturers also noted that the backdrop of Brexit and a volatile exchange rate were making any forecasting activity increasingly difficult, with uncertainty adding to reluctance to hire.”

Howard Archer, chief economic adviser at the EY Item Club, said there are “limited grounds for optimism”.

“While offering some encouragement, the manufacturing sector looks to be finding it hard to regain traction after a markedly weakened performance over the first half of the year.

“The manufacturing’s performance so far in 2018 has largely been in stark contrast to the robust performance seen through the second half of 2017.”