Business & Innovation: Manufacturing Production Rises at Fastest Pace Since May 2014Published: Wednesday, 2nd September 2020
August saw UK manufacturing output expand at the fastest rate for more than six years, as companies and their clients restarted operations following COVID-19 lockdowns. New order intakes also strengthened, but the trend in employment remained weak with job losses recorded for the seventh straight month.Survey data were collected between 12-25 August.
The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index rose to a 30-month high of 55.2 in August, up from 53.3 in July but a tick below the earlier flash estimate of 55.3. The PMI has posted above its neutral 50.0 mark for three consecutive months.Manufacturing production rose at the fastest pace since May 2014, reflecting solid expansions across the consumer, intermediate and investment goods sub-sectors. The steepest growth was registered in the intermediate goods category, whereas investment goods producers saw the lowest pace of growth.Underpinning the scaling-up of output was the fastest increase in new orders since November 2017.
The domestic market remained the prime source of new contract wins, although new export orders rose moderately for the first time in ten months. Manufacturers mentioned improved demand from the EMEA region, North America and Australia.The main factors driving production and new orders higher have been the re-opening of manufacturers and their clients following lockdowns and a loosening of other restrictions in place to combat COVID-19. This has not supported a similar recovery or stabilisation in demand for staff, however, with job losses recorded for the seventh successive month.
However, some manufacturers are still recruiting. Steve Lindsey, CEO of Warwickshire-based Lontra, which manufactures compressors for use in factories worldwide recently began recruiting for 10 jobs on a new assembly line and received more than 15,000 applicants.
Lontra also launched a funding round in February, part of a larger fundraise of £8 million, and has raised sufficient funds to enable it to reach the point of commercial production of its first product. This is a high value machine made in the UK, with proven energy efficiency and reliability gains and with a significant export market, and it is a rare ray of sunlight for embattled British manufacturers.
Steve Lindsey, CEO at Lontra, said:”Today’s encouraging figures signal that despite the impact of COVID-19 on many of Britain’s largest manufacturing employers, the sector has strength in depth and that the recovery is proceeding apace amongst Britain’s dynamic small and mid-size manufacturers. “Within our own business, we’ve managed to avoid furloughing any of our team and indeed have been actively recruiting to support a new assembly line. Businesses such as our own show how British manufacturing is reinventing itself for the digital age.”
Elsewhere, manufacturing employment declined at one of the steepest rates during the past 11 years, with reductions seen across the consumer, intermediate and investment goods industries. Small, medium and large-sized firms also implemented similarly marked cuts to staff headcounts. Stocks of purchases and finished goods both fell further, as companies looked to control costs and complete business delayed by the lockdown. Input inventories fell despite a modest increase in purchasing activity.Input price inflation accelerated to a 20-month high in August.
Rising costs were linked to reduced availability for certain inputs and supply-chain disruption caused by COVID- 19. Exchange rates and increased freight costs were also mentioned. Part of the increase was passed on to clients, with selling prices rising at the fastest pace since March. Supply-chain disruption led to a further lengthening of vendor delivery times.Business sentiment regarding future output prospects remained positive in August, staying close to July’s 28-month high. Companies linked their expectations of output growth to hopes of a move back to more normal operating conditions over time, the launch of new products and the ongoing re-opening of the domestic and global economies.