Manufacturing output slows as inflation grows

Source: Manufacturing Digital

Date :02/05/2008 09:16:53

UK manufacturing hit by combination of slower output growth, declining orders and rising inflationary pressures in April, according to the Chartered Institute of Purchasing and Supply.

The latest CIPS/NTC survey of UK manufacturers said Thursday that it’s seasonally adjusted CIPS/NTC Purchasing Managers’ Index (PMI), which includes output, new orders and employment, fell further from an already anaemic 51.3 in March to 51.0 last month.

However, the PMI fell to its second-lowest level during the past two years, suggesting that conditions in the sector were relatively subdued overall.

UK manufacturing

The rate of expansion in UK manufacturing continued to slow in April with the seasonally adjusted Output Index posting a reading of 50.9.

Levels of incoming new business declined for the fourth month running in April as the seasonally adjusted New Orders Index recorded a reading of 49.5 – its lowest in almost three years. The reduction was linked to strong competition resulting from weaker market conditions and lacklustre demand for consumer products.

Levels of new export business also declined through 2008, suggesting that slower economic growth in key markets, such as the US and Eurozone, was more than offsetting the potential gains of the current weakness of the sterling against the euro.

Inflationary pressures

The seasonally adjusted Input Prices Index rose to 78.5, its second-highest reading in the survey history (the highest was 80.1 posted in April 1995) providing further evidence that inflationary pressures were building in the UK manufacturing sector.

In particular, strong increases in average purchase prices for base metal, chemical, energy, food product and oil prices led to a marked rise in factory gate prices.

The emerging recovery of the manufacturing labour market, following the back-to-back declines in employment at the start of 2008, continued in April. The seasonally adjusted Employment Index recorded a reading of 50.8 - a level unchanged from March.

Meanwhile, purchasing activity declined in April for the first time since November 2005 as companies responded to subdued market conditions.

Tougher conditions

Roy Ayliffe, Director of Professional Practice at CIPS, said: “The manufacturing sector is continuing to feel the effects of tougher global market conditions as purchasing managers combat rising inflationary pressures whilst an ease in production dampened sector growth to its second-lowest level in two years.

“On top of this, the weakness of the sterling against the euro has done little to boost export orders and has pushed the cost of materials sourced from the Eurozone even higher.

Despite this, Mr Ayliffe said there are some signs of relief as employment levels are rebounding from the lows experienced at the start of the year as manufacturing firms are expanding their sales and marketing departments in a bid to win new contracts.”

May 02, 2008