U.K. manufacturing PMI reached 16-year high in November

United Kingdom manufacturing operating conditions showed a marked improvement during November. Employment rose at the quickest pace since the survey began in 1992, reflecting stronger growth of output and faster inflows of new work and new export orders.

The seasonally adjusted Markit/CIPS U.K. Manufacturing Purchasing Managers’ Index rose to 58.0 in November, its highest level since September 1994 and up from a revised figure of 55.4 in October (previously reported as 54.9). The PMI has remained above the neutral 50.0 mark for sixteen months running.

Manufacturing employment rose sharply in November and at the fastest pace in the survey history. Staffing levels have now increased in each of the past eight months. Job creation was attributed to the ongoing economic recovery.

November saw production rise for the 18th successive month and at the fastest pace since May. Output was increased in response to higher domestic and foreign demand and to combat rising levels of outstanding business. Backlogs increased for the first time in five months.

New order inflows improved to the greatest extent since April, reflecting increased demand, client stockbuilding and the launch of new products. New export orders also rose at the fastest pace for seven months. Companies reported increased sales to clients in France, Germany, the United States, China, India and the Middle East.

Cost pressures rose sharply in November, as the rate of inflation accelerated to its highest since August 2008. The steepest price increases were in the Food & Drink, Textiles & Clothing and Timber & Paper sectors, reflecting higher food product, cotton, textiles, paper and timber costs. There were also reports of increased prices for commodities, electronics, metals, oil, packaging and plastics.

Part of the latest increase in costs was the result of supply-chain factors and shortages of some raw materials. Average vendor delivery times lengthened for the 16th month in a row, which manufacturers attributed to low stock holdings at suppliers.

Supply-side disruption also encouraged manufacturers to increase levels of both input purchasing and input holdings. Pre-production inventories subsequently rose at a rate close to October’s survey record high.

Average factory gate prices increased for the 13th month running in November. The rate of inflation was above the average for this period, despite easing to an eight-month low. Manufacturers linked higher selling prices to increased input costs.

Post-production stocks fell for the 31st consecutive month in November, reflecting efforts to meet sales and improve cash flow. Lower inventories combined with faster new work inflows meant that the cyclically-sensitive new orders-to-stocks of finished goods ratio rose sharply to a four-month high.

Rob Dobson, senior economist at Markit and author of the U.K. Manufacturing PMI, stated: “The U.K. PMI surged to a 16-year high in November, confounding the consensus forecast of weaker growth. The stand-out number was the survey record increase in employment, raising hopes that job creation in manufacturing can play a wider role in broadening and sustaining the economic recovery. Output and new order inflows also picked up sharply, and exports rose at a solid clip after a mid-year lull, priming manufacturing and overseas trade to be pillars of Q4 GDP growth.

“This is welcome news, as the rebalancing of the economy away from consumption towards exports represents a key part of the coalition's growth strategy, and comes at a time when stronger manufacturing expansion may well be needed to offset a likely slowdown in consumer spending as austerity measures start to bite.”

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, said: “This month’s PMI brings some early Christmas cheer for the U.K. manufacturing sector, particularly the record-breaking growth in employment figures. The reported increase in purchasing activity based on strong new orders points to ongoing recovery and renewed confidence. The pickup in export markets continues to expand as customers look to replenish their inventories, building on the momentum gained last month and a step along the way to realigning the U.K. economy. While this is good news for manufacturers at the end of what has been a rollercoaster year, the next few months will be far from an easy ride. Persistent cash flow pressure has led to falls in suppliers' stock over time – compounding disruption in supply chains and resulting in longer delivery times. Increased purchasing activity is also adding to input cost inflation, which is likely to continue rising for the foreseeable future.”