Solid domestic market drives growth of output and employment

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The upturn in the UK manufacturing sector continued in November. Although the rate of growth in recent months has remained weaker than in the opening half of the year, the latest survey month nonetheless saw further solid expansions of output, new orders and employment.

The domestic market remained the main pillar supporting the upturn, while the trend in new export orders remained subdued. The seasonally adjusted Markit/CIPS Purchasing Manager's Index (PMI) posted 53.5 in November, up slightly from 53.3 in October, a four-month high and a level above the no-change mark of 50.0 for the 21st successive month. Manufacturing production rose for the 20th successive month in November, as companies scaled up output in response to improved inflows of new work. Solid domestic market conditions, promotional activity and new client wins were all factors driving the latest rise in new work. Although slower than in the first half of the year, the expansions in manufacturing production and new business remained broad-based. November saw output and new orders increase in the consumer, intermediate and investment goods sectors and also across SMEs and large-sized companies. Manufacturing employment increased for the 19th consecutive month in November, as the ongoing upturn in the sector continued to filter through to the labour market. Moreover, the rate of job creation recovered to reach a four-month high. The sharpest increases in employment were signalled by SMEs, although large-sized companies also saw a modest gain in headcounts. Price pressures remained subdued in November. Average output charges rose only marginally and to the weakest extent during the current 17-month period of increase. Meanwhile, average input prices fell for the third straight month. Companies reported lower prices paid for chemicals, commodities, food raw materials, oil, and plastics. There was also some mention of the exchange rate reducing the price of imported materials. The trend in new export orders remained weak during November, as exporters faced a combination of subdued global market conditions and a relatively strong sterling-euro exchange rate. New export business decreased for the third consecutive month, with companies reporting lower order inflows from the EU, Russia and emerging markets. Lee Hopley, chief economist at EEF, said: "Today's data confirms the picture remains one of expansion in the final months of the year, particularly for manufacturing sectors focused on the domestic market. Despite more disappointing results in key markets such as the Eurozone, this year should be the strongest year for industry since 2010. "The Chancellor can ensure this growth continues in the years ahead by ensuring the right business environment for companies planning to invest, recruit and get into new markets is a target for further action in Wednesday's Autumn Statement." Rob Dobson, senior economist Markit, added: "The news on the domestic front was especially positive, with solid new order inflows from the UK market the main pillar supporting the expansion. This in turn encouraged manufacturers to raise employment at the fastest pace in four months. "The only real negative from the survey came on the export-side, with new export business suffering a further slight decline. Slower global economic growth is hitting sales to emerging markets, while a strong sterling-euro exchange rate is also stifling trade with the Eurozone nations. "Apart from the underlying growth picture, a lot of focus remains on the trend in prices. On this score, the latest survey suggests that price pressures in manufacturing remain subdued, with input costs falling for the third straight month and output charges rising only negligibly. Recent falls in oil prices should further help reduce manufacturers' costs."