Manufacturing upturn remains solid

The PMI eased to an eight-month low of 55.3 in March, signalling a further cooling of growth from the peaks scaled towards the end of last year. Nonetheless, it remains well above its long run average of 51.4 and has highlighted an improvement in operating conditions in each of the past 12 months. Manufacturers continued to scale up production during the latest survey period. Output has also risen throughout the 12 months, underpinned by rising levels of incoming new orders. However, rates of increase for output and new business cooled further from the highs registered during the second half of last year. The latest slowdowns were mainly centred on the investment goods sector, where rates of expansion eased markedly. The domestic market remained the prime source of new contract wins. The trend in new export orders weakened further, with March data signalling the slowest pace of growth for 10 months. Where an increase was reported, this reflected higher demand from Europe, North America, China, the Middle-East, Brazil and Australia. Some firms mentioned lower inflows of new business from clients in the Asia-Pacific region. March data signalled a moderation in price pressures. Average input costs fell for the first time in over one-and-a-half years, reflecting reports from companies of reduced prices for commodities, energy and metals. Output charge inflation eased to a seven-month low, as strong competition and lower purchasing costs led some manufacturers to hold off from raising their selling prices. EEF chief economist Lee Hopley said: "Whilst the headline number has drifted down from the highs seen in the last quarter of 2013, activity levels across manufacturing are still expanding at a reasonably healthy clip and, the sector is also creating jobs. Rising output continues to be supported by strength in the domestic market, but the pick-up in Europe is also translating in stronger export demand for some manufacturers. In contrast to the last couple of years, cooling activity in emerging markets, as evidenced by weaker PMIs across parts of Asia, seems to be limiting the growth of new export business. "With all the business surveys pointing in a positive direction for manufacturing since the start of the year, we should expect the sector to post growth of 0.8% in the first quarter. With additional support from government to boost investment kicking in today it remains critical that an improving outlook for the sector translates into more spending on plant and machinery if the UK is to achieve a sustainable long-term recovery." Rob Dobson, senior economist at Markit, added: "The latest Manufacturing PMI is likely to disappoint the markets, coming in a more than a full index point below expectations, but it's important to remember that this is in the context of the super-strong, near-record growth rates seen in the second half of last year. Growth is merely hot rather than scorching, and the take home messages from the March survey are that the recovery remains solid and continues to drive strong job creation."