Manufacturing growth continues to slow

Manufacturing output and new orders expanded again in August, taking the respective sequences of growth to one-and-a-half years in both cases. Companies linked higher production to growth of new orders from domestic and overseas markets. The upturn also remained broad-based, with production and new business inflows continuing to rise across the consumer, intermediate and investment goods industries. Although the sector is nonetheless still achieving a reasonably solid pace of expansion, signs of a slowdown have become increasingly evident in recent months. Survey indices for output and new orders are now around seven points lower than at the beginning of the second quarter. The easing in the growth rate of output in August was also as broad as the expansion, with rates of increase slowing across the three product categories covered. However, foreign demand for UK manufactured goods increased for the 17th month in a row in August. Order inflows improved from clients in the USA, Canada, Asia and the Middle East. However, the rate of increase in new export orders was the lowest since March. August also saw further job creation at UK manufacturers, with employment rising for the sixteenth straight month. The rate of growth in payroll numbers nonetheless slowed in line with the trends in output and new orders, hitting a 14-month low. Staffing levels were raised at SMEs, but trimmed moderately at large-scale producers. The level of work-in-hand (but not yet completed) at UK manufacturers decreased for the sixth month running in August. Companies linked lower backlogs of work to higher production, increased employment and to settling contracts from existing inventories. The level of stocks of finished goods subsequently dropped at the fastest pace since November 2013, taking the forward-looking new orders to inventory ratio to its joint-lowest in 16 months. Purchase price inflation ticked higher in August, reaching a seven-month peak, but remained low by the historical standards of the survey. Average selling prices also posted a modest increase, albeit the least marked for three months. Lee Hopley (pictured), chief economist at EEF, said: "The picture emerging from all manufacturing surveys is a softening in the pace of expansion, though the sector hasn't moved into the slow lane, is still growing and remains on track for a solid increase in output this year overall. But we've seen a range of factors start to weigh on demand for UK goods, particularly from flagging overseas markets. "Trading conditions have become somewhat more challenging as we've moved into the second half of this year so it remains critical that policy makers continue to focus efforts on sustaining growth across manufacturing and, the economy, in the rest of this parliament." Rob Dobson, senior economist at survey compiler Markit, added that the underlying dynamics of the survey provided a consistent picture of a broad slowdown. However: "Sustaining the upturn is nonetheless still a positive in itself, and it should be noted that the pace of expansion remains solid and a touch above its long-run average." Nonetheless, he said, it was becoming increasingly evident that UK industry is not immune to the impacts of rising geopolitical and global market uncertainty: "It therefore looks as if manufacturing will provide a lesser contribution to the UK economic growth story in the third quarter than at the start of the year."