Manufacturing ends year on a high

The seasonally adjusted Markit/CIPS Purchasing Managers' Index (PMI) posted 57.3 in December, down slightly from November's 33-month high of 58.1, but still a level indicative of a robust improvement in overall operating conditions. Moreover, the average PMI reading for the final quarter as a whole (57.2) was the highest since Q1 2011. Manufacturing output rose for the ninth successive month in December, underpinned by rising levels of incoming new work and efforts to clear backlogs of work. Meeting the needs of current and existing contracts also led to a further solid reduction in post-production inventories. Subsequently, the stocks of finished goods to new orders ratio posted one of its highest readings in the survey history to date. The level of new export business increased for the ninth consecutive month in December. However, the rate of growth eased to the weakest since September. UK manufacturers reported improved demand from Brazil, China, Ireland, Russia and the USA. December data signalled an eighth successive monthly increase in manufacturing employment. Purchase price inflation accelerated to a 28-month high, pushed up by the increased costs of commodities, energy, meat, paper, packaging, polymers and timber. There were also some reports that suppliers were raising their prices in response to increased raw material demand and shortages of certain inputs. Concurrently, average vendor lead times lengthened for the seventh month in a row. Output charges rose at the fastest clip since September 2011. Where an increase in factory gate prices was recorded, this was linked to escalating raw material costs. There were also reports of charges being raised in response to improved demand. Lee Hopley, chief economist at manufacturers' organisation EEF, said: "Surer signs of a manufacturing recovery in Europe together with steady growth both at home, in the US and emerging markets should align to support solid expansion of UK manufacturing in the year ahead. "However, while we can hope to see more of the ground lost during the recession made up this year, we must also start to see new investments coming on stream if the sector is to secure a sustainable, long-term recovery." Rob Dobson, senior economist at survey compilers Markit, added: "On its current track, the sector should achieve output growth of over 1% in the final quarter while filling around 10-15 thousand jobs, continuing its positive contributions to both the broader economic and labour market recoveries… "With the manufacturing sector still some 9% off its pre-crisis peak production, the question everyone wants answering is whether this upturn can develop into a self-sustaining recovery. The news is still good on this score, as growth is coming from a broad base that should help keep the rebound on track during the early stages of 2014."