U.K. manufacturing PMI hits highest level since September 1994

The United Kingdom manufacturing sector reported a strong start to the second quarter. At 58.0 in April, from an upwardly revised figure of 57.3 in March, the seasonally adjusted Markit/CIPS Purchasing Managers’ Index (PMI) rose to its highest level since September 1994. The PMI has signaled an improvement in operating conditions in each of the past seven months.

Manufacturing production increased for the eleventh month running in April, with the rate of expansion only slightly below March’s 15.5-year high. Underpinning the latest rise in output was the sharpest growth in total new business since January 2004 and a series record increase in new export orders. The forward-looking new orders to inventories ratio also stayed at an elevated level, suggesting production will continue to rise at a rapid pace in coming months.

Higher levels of total new work reflected improved global market conditions, client restocking, and successful product promotions. Increased overseas sales were particularly commonly reported from customers in China, mainland Europe, the Middle East, North America and Scandinavia, in many cases aided by the ongoing weakness of the sterling exchange rate.

Growth of output and new orders both remained broad-based by product category and company size, a positive development for the sustainability of the recovery. The rate of expansion in output was strongest in the intermediate goods sector.

Manufacturing employment increased for the third time in the past four months in April, and at the fastest rate since February 2007. This followed the sustained period of job cutting seen throughout much of 2008 and 2009.

Higher employment mainly reflected increased production and sales requirements, amid evidence that current demand was testing capacity. This was exhibited by the first increase in outstanding business since backlogs data were first collected in November 1999. Low levels of stock at manufacturers and supplier delivery delays also contributed to the increase in backlogs.

Suppliers’ lead-times lengthened to the greatest extent for almost 15.5 years in April, as suppliers faced logistical problems in meeting the strongest monthly increase in purchasing of inputs since October 1994. Subsequently, average input prices rose at the fastest rate since August 2008. Price rises were reported for a wide variety of inputs including chemicals, feedstocks, food products, freight, fuel, metals, oil, paper, petroleum, polymers and timber.

Manufacturers passed on part of the rise in their costs to clients in the form of higher selling prices in April. Output prices rose for the sixth month running and at the fastest rate since October 2008.

Rob Dobson, senior economist at Markit, said: “Manufacturers reported a flying start to the second quarter, with the weak pound boosting export growth to the fastest for at least 15 years. The data point to manufacturing output growing by as much as 2 percent in the latest three months, suggesting the sector will provide a strong contribution to second quarter gross domestic product. The sheer strength of the rebound in demand for manufactured goods is highlighted by an unprecedented increase in backlogs of work, the largest for at least 11 years, which in turn has encouraged manufacturers to raise staffing levels to the greatest extent for three years. The feeding-though of rapid output growth to job creation is particularly good news, and bodes well for the sustainability of the U.K. economic recovery.”

Commenting on the report, David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, said: “This performance of the U.K. manufacturing sector is hugely encouraging as it is proving surprisingly resilient. It is now growing at a rate of knots - maintaining the momentum gained in Q1 and faring much better than we could have dared hope for this time last year. Positively, purchasing managers reported growth across all sub-sectors and in companies of all sizes. What’s more, given that stock levels are still relatively low, this is a trend we anticipate seeing for some time to come as firms work to try and meet increasing sales demand. The real turning point will come when manufacturers feel confident enough to increase their investment and start to build capacity again. The good news is there are already signs this is starting to happen as employment levels are slowly rising on the back of strained capacity and backlogs of work reported for the first time in over a decade.”