UK manufacturing activity rises faster than expected as output growth slows

LaToya Harding
·Contributor
·3 min read
Staff work on the Jaguar XJ production line at their Castle Bromwich Assembly Plant in Birmingham November 29, 2011. REUTERS/Eddie Keogh (BRITAIN - Tags: TRANSPORT BUSINESS)
New orders expanded following a slight decrease in January, as domestic demand improved and new export business inched higher. Photo: REUTERS/Eddie Keogh

Manufacturing activity in the UK continued to climb faster than expected in February, new figures have shown.

The IHS Markit/CIPS Purchasing Managers’ Index rose to 55.1 last month, up from 54.1 in January — a reading above 50 designates growth.

However, output growth at British factories dropped to the slowest rate since May last year amid Brexit complications as the UK departed from the EU, the ongoing COVID-19 disruption and shipping difficulties. The reading came in above a flash estimate of 54.9.

New orders expanded following a slight decrease in January, as domestic demand improved and new export business inched higher.

Companies reported improved demand from several markets – including the US, Asia, Scandinavia and mainland Europe.

IHS Markit warned that the pace of gains had been constrained during the month as a result of supply-chain disruptions and rising cost pressures, and that manufacturing constraints look set to remain for the coming months.

Rob Dobson, director at IHS Markit said: “With current constraints likely to continue for the foreseeable future, pressure on prices and output volumes may remain a feature during the coming months.

“That said, improved domestic demand as lockdown restrictions ease and a further rise in manufacturers' optimism are reasons to hope brighter times are on the horizon, and have already supported a modest rebound in staffing levels since the turn of the year.”

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It came as European manufacturers posted the fastest rise in growth in three years, and a jump in input costs.

The eurozone manufacturing PMI, which measures activity across the sector, jumped to 57.9 in February amid a surge in demand. That signals a strong increase in activity, up from January’s 54.8.

Germany, the Netherlands, Austria, Italy and France reported the strongest growth, with only Greece weakening to a 2-month low.

Chris Williamson, chief business economist at IHS Markit, said: “Manufacturing is appearing as an increasingly bright spot in the eurozone’s economy so far this year. The PMI has reached a three-year high to run at a level that has rarely been exceeded in more than two-decades of survey history – notably during the dot-com bubble, the initial rebound from the global financial crisis and in 2017-18.

“Producers are benefitting from resurgent demand for goods in both domestic and export markets, linked to post-COVID recovery hopes driving renewed stock building and investment in business equipment and machinery, as well as improved consumption.”

Richard Austin, head of manufacturing at BDO said: “While the rise in the UK’s manufacturing PMI is encouraging, sentiment is notably lower than in major Eurozone economies which have reported the fastest growth in manufacturing for three years.

“While the vaccine roll-out is faster in the UK than in mainland Europe, this would suggest that Brexit frictions are proving challenging.

“Input price inflation which has been rising for 10 straight months also continues to weigh on sentiment, reflecting increased raw material costs and transport prices. Lengthening supply chains are also tying up working capital for longer which is putting a greater strain on manufacturers’ finances.”

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