UK manufacturing hits record growth

The figures, from the Chartered Institute of Purchasing and Supply's Purchasing Managers' Index (PMI) showed rates of expansion in UK manufacturing new orders and employment accelerating to reach levels without precedent in the 19-year survey history in January, leading to near-record growth in output. However, inflationary pressures continued to build, as input costs and output prices also rose at, or near to, series record highs. At 62.0 in January, from an upwardly revised reading of 58.7 in December, the PMI rose to a record high, having remained above the neutral 50.0 mark throughout the past year-and-a-half. Manufacturing production rose for the 20th consecutive month in January, underpinned by faster inflows of incoming new work. Growth of output hit a survey record high in the consumer goods sector, but also accelerated at both capital and intermediate goods producers. Companies reported improved demand from both domestic and overseas markets, while new product launches, successful promotional activity and client restocking also contributed to new order growth. The rate of increase in new export orders was among the fastest in the series history. Latest growth reflected higher sales to the US, emerging markets, Scandinavia and Australia. Manufacturing employment increased for the 10th successive month. Companies linked jobs growth to rising production requirements, improved market conditions, business development and the launch of new product lines. Part of the increase reflected efforts to combat rising levels of outstanding business, as backlogs accumulated for the third month in a row. Inflationary pressures continued to build in January, with substantial increases signalled for both input costs and factory gate prices. Average purchase prices rose at the steepest pace in the survey history, with over three-fifths of companies reporting an increase. Manufacturers indicated a vast array of inputs had risen in price, including chemicals, cotton, energy, food products, metals, packaging, paper and timber. Average output prices rose for the 15th successive month in January, mainly reflecting increased input costs. This was further highlighted by the sectors reporting the steepest inflation of output prices – Chemicals & Plastics, Timber & Paper, Food & Drink and Textiles & Clothing – also seeing the sharpest increases in costs. Rising output requirements and efforts to protect against expected future price increases led to a near survey record increase in purchasing activity. Subsequently, holdings of raw materials rose at the quickest rate since data were first collected in January 1992. Meanwhile, stronger demand for raw materials led to a marked increase in vendor lead times, as sellers' markets continued for certain inputs. Commenting on the figures, Barclays head of manufacturing Graeme Allinson said: "These PMI figures are unprecedented and should bring the Government some cheer, but while manufacturing continues to outperform the wider economy, it is by no means immune from diving consumer confidence, languishing house prices and a struggling service sector. EEF chief economist, Lee Hopley, said: "Manufacturing continues to go from strength to strength, undeterred by either the weather or sluggishness in the rest of the economy. This incredibly strong start the year at home and abroad is only countered by price pressures which are posing a stark challenge for firms trying to sustain growth through what is likely to be a challenging year. Rob Dobson, senior economist at Markit and author of the PMI said the record breaking start to 2011 confirmed that the sector remained one of the brighter spots of the UK economy, while CIPS CEO David Noble (pictured) said the sector had continued to expand quicker than even the most optimistic could have predicted. He went on: "The significant increase in purchasing activity shows that manufacturers are feeling confident about the future and ensuring they have sufficient stock to meet increased orders. It's also apparent that most are looking to build up inventories and make certain that they're not caught short in the face of raw materials shortages. Manufacturers will be watching intently to see how the Government and Bank of England move to tackle the issue of rising inflation, and hoping for stimulation to encourage continued growth in a sector which is currently leading the way towards UK recovery. A very different picture from last year."