U.K. manufacturing sector growth slowed in November

RP news wires, Noria Corporation

At 52.6 in November, down slightly from 53.5 in October, the seasonally adjusted CIPS/RBS Purchasing Managers’ Index (PMI) for United Kingdom manufacturing provided further signs that the current expansion of the sector is continuing to slow as the PMI has fallen below its 2006 average of 53.2. This is largely due to an easing in output growth, resulting in declining employment levels and some redundancies.

 

Although the rate of expansion in manufacturing production remained solid in November, output growth eased to its least marked since March. Companies reported that a higher intake of new orders, and efforts to reduce levels of outstanding business, were the principal factors underpinning the increase in output.

 

CIPS/RBS PURCHASING MANAGERS’ SURVEY – AT A GLANCE

Series

November

Index

November

Direction

Rate of Change –

November vs. October

PMI

52.6

Increasing

Slower

New Export Orders Index

52.8

Increasing

Slower

Input Prices Index

63.2

Increasing

Slightly slower

Output Prices Index

53.8

Increasing

Slower

Employment Index

47.6

Decreasing

Change of direction

 

At 52.8 in November, the seasonally adjusted New Export Orders Index signalled an increase in the levels of new work received from the U.K.’s foreign clients for the third successive month. Panelists reported that the United States, Germany, India and the Republic of Ireland were the principal sources of new export contracts. Growth in the export order volumes was slightly less marked than in the previous month. 

 

At 63.2 in November, the seasonally adjusted Input Prices Index signaled that U.K. manufacturing companies continued to face an elevated rate of input cost inflation. Panelists reported paying higher prices for metals, plastics, chemicals and a number of paper products. However, inflation of purchasing costs eased for the third month running to its least marked since January.

 

Average factory gate prices rose for the 16th successive month in November, as companies passed on part of the increase in their purchasing costs to their clients in the form of higher output prices. There were also reports that the current upturn in new order volumes had encouraged firms to raise their prices. However, at 53.8, the seasonally adjusted Output Prices Index posted its lowest reading for six months.

 

After maintaining a broad sideways trend throughout the past seven months, U.K. manufacturing employment posted a noticeable decline in November. This was highlighted by the seasonally adjusted Employment Index, which posted a reading of 47.6, its lowest since January. Where a reduction in staffing levels was recorded, lower employment was attributed to rationalisation and efficiency programmes. There were also reports of redundancies and the non-replacement of leavers.

 

Supply-side pressures continued to rise in the U.K. manufacturing sector during November, as highlighted by a further marked deterioration in average vendor performance. Supplier lead-times have now lengthened in each of the past 57 months, and the latest increase was linked to shortages of certain raw materials.

 

Companies maintained a preference for leaner inventory holdings in November, leading to declines in the levels of both pre- and post-production stocks. However, the contraction in purchased goods inventories was only slight, as purchasing activity was raised (in part) to reduce the pressure on inventories.

 

“Purchasing Managers reported a solid rate of expansion in the U.K. manufacturing sector for November, albeit at its lowest rate since March of this year," said Roy Ayliffe, director of professional practice at CIPS. "Significantly, employment fell for the first time this year, mirroring the slower trend in activity growth. However, with new orders indicating that domestic and foreign demand remained robust, these figures point towards a relatively strong end to the year for U.K. manufacturing.”

 

CIPS/RBS Purchasing Managers’ Index

 

June 06

July 06

Aug 06

Sept 06

Oct 06

Nov 06

Original

55.1

53.6

50.5

56.4

55.4

54.5

S/adjust

55.0

53.7

53.0

54.4

53.5

52.6

 

 

Market-sector variations (seasonally adjusted) include:

 
Output

Oct

Output Nov
N.Ord
Oct
N.Ord
Nov

Prices

Oct
Prices Nov

SDTi

Oct
SDTi

Nov

Consumer  

Goods

53.9

55.4

53.7

55.7

64.6

63.9

43.5

44.5

Investment Goods

54.6

51.4

55.5

53.7

61.6

67.6

39.3

38.9

Intermediate Goods

55.2

53.9

55.2

52.7

62.1

60.9

41.2

42.6

 

 

Commenting on the United Kingdom Manufacturing Purchasing Managers’ Index survey data, produced for The Royal Bank of Scotland by NTC Economics, RBS Group chief economist Andrew McLaughlin said: “It looks like the expansion of the U.K. manufacturing sector peaked during mid-2006, and is quickly making its way back toward trend-like performance. The November PMI is pretty limp, although output still expanded at a solid rate of around 1.25 percent to 1.5 percent year-over-year and demand is respectable. With global gross domestic product now off the boil and Sterling gaining ground, it’s hard to foresee an imminent improvement. The sector is experiencing jobless growth at present. This is most likely due to the surge in costs seen during the first half of the year. Input costs remained elevated in the November survey but should subside in the months ahead as the unwind in energy costs continues.”

 

Key findings for November include:

  • The November survey of the U.K. manufacturing economy by CIPS and RBS provided further signs that the current expansion of the sector is slowing. Growth of output and new orders remained solid, but eased for the second successive month. Employment declined for the first time since May.
  • The slowdown was also highlighted in the trend of the headline seasonally adjusted Purchasing Managers' Index. At 52.6 in November, the PMI posted its lowest reading for eight months and a level slightly below its average for 2006 to date (53.2).
  • Although the rate of expansion in manufacturing production remained solid in November, output growth eased to its least marked since March.
  • U.K. manufacturers reported improvements in the levels of new work received from both their domestic and foreign clients in November. The U.S., Germany, India and the Republic of Ireland were among the main sources of new contracts.
  • After maintaining a broad sideways trend throughout much of 2006, manufacturing employment declined in November at its sharpest rate since January.
  • November data pointed to a sharp easing in the rate of increase in average factory gate prices, although companies were still able to pass on part of the rise in their average costs to their clients. Inflation of purchase prices remained elevated, but eased slightly.
  • Companies reported higher prices for metals, plastics and chemicals.
  • Supply-side pressures continued to rise in the U.K. manufacturing sector during November, as highlighted by a further marked deterioration in average vendor performance.