The PMI sat at 56.7 – slightly below April’s three year high of 57.3 and above the neutral mark of 50.0.
Markit says that manufacturing production and new orders both expanded at above survey average rates, and companies benefitted from continued strength of the domestic market. There was also a solid increase in new export business.
Overseas demand improved due to a combination of the historically weak sterling exchange rate and manufacturers’ efforts to promote and launch new products in foreign markets. The level of incoming new export orders rose for the thirteenth month in a row.
Sector data also indicated that solid expansions of production and new orders were seen across the consumer, intermediate and investment goods categories. Output growth was led by the intermediate goods sector, Markit adds.
The ongoing expansion of the manufacturing sector also had a positive impact on both business sentiment and job creation. However, rates of inflation in input costs and output charges remained elevated. There were also signs of a sellers’ market developing for some inputs, due to supply shortages and an associated lengthening of vendor lead times.
Several manufacturers noted that they maintained sufficient pricing power to pass on higher costs to clients. Despite easing to a five-month low, the increase in selling prices was still among the fastest seen in the survey history.
Says IHS Markit senior economist Rob Dobson: “The strong PMI numbers suggest the manufacturing sector has gained growth momentum in the second quarter after the sluggish start of the year. The ongoing strength of the domestic market remains the main driver of the upturn. Growth of new export business played a lesser role in comparison, with the trend in foreign demand continuing to improve only in fits and starts, despite the assistance of a historically weak sterling exchange rate.
“The survey also provided positive signs that the upturn may be sustained, as growth of new orders remained solid, backlogs of work rose at the quickest pace in six years and business optimism improved to a 20-month high. These underlying dynamics are proving to be a real boon for the manufacturing labour market, with May seeing jobs added at the fastest pace since mid-2014. On this basis, the sector should have sufficient momentum to see it through the uncertainty generated by the current unexpected general election and into the start of Brexit negotiations later in the quarter.”
Industry reaction:
“Fears of a 2017 slowdown don’t yet seem to be feeding through to the manufacturing sector as it continues to report growing levels of investment and employment, as well as healthy order books. Exporters have continued to take advantage of a weak sterling, which has kept British exports competitive on a global stage, and at a time when the world economy is showing signs of improvement.
"However, rising cost pressures are still circling, not only from elevated import costs but also from the growing effect of domestic costs from sources such as energy and staffing which will all contribute to fuelling inflation. Although manufacturers have resisted passing on these costs to date, the expectation of price rises is becoming more apparent in the sector.”
Mike Rigby, head of manufacturing, Barclays
“A modest retreat from last month’s near three-year high continues to signal that the UK manufacturing is in good shape. Output and orders expansion is being driven by resilient demand coming through UK supply chains and a better looking global economy than UK manufacturers have been used to for some time.
“The familiar story of cost pressures following commodity price rises and a weaker sterling still coming through the pipeline will continue to play a role in dampening the spirits of UK consumers. The growing demand for employees in the manufacturing sector should however provide additional support for ongoing positive labour trends, though will do little to help with the growing productivity challenge.”
Lee Hopley, chief economist, EEF
“Manufacturers are continuing to take advantage of the low value of sterling and creating new relationships in existing and emerging markets, with many using this opportunity to build on Britain’s reputation for world-class, quality manufacturing.
“At home, there are more challenges as firms are facing inflationary pressures and a slow-down in consumer spending. Many are responding by implementing price rises and our Working Capital Index shows that the sector has been buying stock at the fastest rate in six years as a hedge against rising import costs.
“While a third successive month of decline is disappointing, we see a sector that continues to expand, which we hope will see confidence remain above the long-term average in the months to come.”
Dave Atkinson, UK head of manufacturing, Lloyds Bank Commercial Banking
