UK manufacturing maintains strong start

The seasonally adjusted PMI posted 61.5 in February, unchanged from January's series record high. The PMI has now remained above the neutral 50.0 mark for 19 successive months. Commenting on the numbers, EEF chief economist, Lee Hopley, said: "Manufacturers have got off to a strong start but the challenge is to maintain this momentum in the face of stiff economic headwinds. Whilst more companies are recruiting, just as many are reporting skills shortages and the build up in commodity prices shows no signs of abating. However, the new worry emerging is the potential for a recovery dragged down by a lack of investment which the Chancellor must address in the Budget." Production rose at a strong pace in February, underpinned by a substantial increase of incoming new orders. Output growth hit survey record highs at consumer and intermediate goods producers. Although still solid, the rate of expansion in the capital goods sector eased sharply since January. Stronger demand was seen from both domestic and export markets, reflecting improved market confidence, clients restocking and the launch of new product lines. New export orders rose for the fifth month running and at the third-fastest rate in the series history. Companies reported stronger inflows of new orders from the US, China, Germany and the Middle-East. Jobs growth in the manufacturing sector accelerated to a new survey record high rate in February. Increased staffing levels reflected higher production and rising new order books. Job creation was at series record highs in both the consumer and intermediate goods sectors, and also accelerated at capital goods producers. However, inflationary pressures remained elevated in the manufacturing sector during February. Rates of increase in output prices and input costs were near to their respective record highs. Companies reported that increased prices for cotton, energy, metals, oil, plastics and timber had led to a further substantial rise in average purchasing costs. The rate of increase was only slightly below January's peak. Meanwhile, output prices rose at the second-fastest rate in the survey history, as companies passed on part of the increase in raw material prices. Manufacturers also linked input cost rises to increased global demand for a number of items and to ongoing supply-chain shortages. Purchasing activity rose markedly in February, with the extent of the increase only slightly less marked than January's sixteen-and-a-half year peak. A combination of higher demand and low vendor stock holdings led to further lengthening of suppliers' lead-times. Rob Dobson, Senior Economist at Markit said: "A jobless recovery would be a weak recovery, so it is positive to see jobs growth hit a fresh record high. However, the strong performance of the sector, which makes up 13% of UK GDP compared to 52% for non-government services, can only partly offset the weaker parts of the economy such as services and construction. "The latest data also confirm that input cost and output price inflationary pressures remain elevated, which may raise a further eyebrow amongst the members of the Bank of England's Monetary Policy Committee." David Noble (pictured), CEO at the CIPS said strong growth in demand had "put breath in the sails of the UK economy". "This was the case at home as well as overseas leading to record increases in output and in turn to more jobs being created. This is positive news given last week's surprise downward revision of official GDP numbers. "The fly in the ointment remains macro-level inflation which is likely to go from bad to worse due to the unrest in Libya and escalating oil prices. Purchasing managers reported raw materials costs were continuing to rise at historically high levels during February, leading many to pass on higher purchasing costs to their clients. "Textiles & Clothing and Chemicals & Plastics felt the most severe impact of higher input costs during February; and one of the challenges for the forthcoming Budget will be finding ways of supporting these relatively high performing industries through a period of uncertainty. "So, in all, good news is out there for some but there's still a difficult path for others."