UK manufacturing recovery continues

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UK manufacturing continued to recover in August, but rates of expansion in production and new orders slowed further, according to the latest Markit/CIPS UK Manufacturing PMI.

The seasonally adjusted PMI, which is calculated from data on new orders, production, employment, supplier performance and stock of purchases, fell to 54.3 in August from 56.9 in July – its lowest level since November 2009.

However, despite this the PMI remained above the neutral mark of 50 for the eleventh successive month, consistent with ongoing recovery in the sector.

Manufacturing production and incoming new orders both continued to grow in August.

Rob Dobson, senior economist at Markit and author of the UK Manufacturing PMI, said: “The latest PMI data provided further evidence that the expected slowdown in the UK manufacturing recovery from its highs earlier in 2010 is underway.

“Growth of output slipped to an 11-month low, as the expansion in total order books slowed substantially since July. Taken alongside the Eurozone figures published today, it looks as if a broad industrial slowdown is occurring across much of the EU.

“The forward-looking orders-to-inventory ratio is also pointing to further slowing in the UK in coming months and, following a surge earlier in the year, the hoped for support from exports has been fizzling out in recent months. However, there are still some positives to take from the latest survey. Most indicators are still consistent with growth continuing, further job creation was recorded and, although the intermediate and consumer sectors are cooling, the capital goods sector accelerated which suggests that investment spending is still supporting growth.”

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, added: “The looming public sector spending cuts are keeping UK manufacturers on tenterhooks and slowing the pace of the recovery. While the volume of work continues to expand, businesses are taking a more cautious approach to new orders, with growth of order books slowing sharply in August. The government spending review in October should bring more clarity to the situation.

“Despite input inflation hitting a seven-month low, there are still pressures on the supply chain as the level of purchasing continues to outstrip supply. Looking forward, employment levels look encouraging for the second half of the year – but we mustn’t be too hasty as we are still a long way off from a full recovery in the sector’s labour market as Augusts’ data points to a similar easing in growth for the rest of the year.”

The survey also suggests that the manufacturing sector’s contribution to GDP will have moderated in Q3, with quarterly growth slowing from the 1.6 per cent pace seen in Q2 (the best quarter for over a decade) to less than one per cent for Q3 as a whole, providing the Index does not change substantially in September.

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