UK manufacturing growth weakens for second month
UK manufacturing growth slowed at the beginning of 2018 because of weaker domestic demand, though the strong global economy continued to support the sector.
The manufacturing purchasing managers' index from IHS Markit and CIPS fell to 55.3 in January from 56.2 in December, below the consensus forecast of 56.5. The PMI survey indicated industrial production rising at a solid quarterly rate of around 0.6% in January.
This was the index's lowest reading since June last year and the second decline since November’s four-year high, with the forward-looking new orders index also slipped to a seven-month low.
On the upside, January's seasonally adjusted PMI was still well above its long-run average of 51.7, with manufacturing companies reporting higher production from continued rising new orders, albeit the growth was the slowest in seven months.
New export order inflows strengthened, with a rise in the new export orders balance to 56.2 from 55.4 as overseas demand improved at one of the quickest rates over the past four years.
Purchase prices rose at the fastest rate in 11 months and at one of the sharpest spikes in the survey's history as companies reported a wide range pricier raw materials and commodities, including chemicals, food products, metals, oil, paper and plastics. With some of this passed on to customers, January saw the steepest increase in output charges since last April.
“The UK manufacturing sector reported an unwelcome combination of slower growth and rising prices at the start of 2018," said Rob Dobson, a director at IHS Markit, though he was encouraged that jobs were being added at a faster pace.
"However, output growth has slowed sharply since last November’s high, and the more forward-looking new orders index has slipped to a seven-month low. The trend in demand will need to strengthen in the near-term to prevent further growth momentum being lost in the coming months."
The pound came back of its earlier day's highs on the PMI print, still up 0.34% against the dollar at 1.4239 and up 0.15 on the euro at 1.1449.
Economist Ruth Gregory at Capital Economics said: "The fall in the UK manufacturing PMI in January suggests that growth has slowed a little at the start of the year. But the big picture is that the sector is still performing well by recent standards."
She was reassured that strong global demand and sterling’s post-referendum fall still seemed to be providing ample support for manufacturers.
"On the basis of past form, the output balance suggests that growth in the latter is still running at a little below 1%, not far below Q4’s strong 1.3% quarterly rise. Other survey evidence, such as the CBI Industrial Trends Survey, has been pretty upbeat recently too. All in all, then, the figures haven’t changed our view that the manufacturing sector should continue to provide strong support to GDP growth, helping to offset the slowdown in the consumer services sector."