GROWTH of UK manufacturing output slowed in March to its weakest pace since the current run of expansion began in August last year, and inflationary pressures remained intense amid sterling’s post-Brexit vote weakness, a survey shows.
The slowing of growth in the sector was centred on consumer goods producers, according to the survey published yesterday by the Chartered Institute of Procurement & Supply.
This finding chimes with signs of increasing pressure on household finances, as sterling weakness fuels consumer price inflation and pay settlements remain low.
And economists predicted challenging times ahead for the UK manufacturing sector.
CIPS’s headline purchasing managers’ index for the UK manufacturing sector, a broader measure of activity that includes output, new orders, employment, suppliers’ delivery times and stocks of goods purchased, fell for a third consecutive month in March.
The latest drop, from 54.5 in February to 54.2 last month on a seasonally-adjusted basis, took it to its lowest level since November last year. While it remains comfortably above the level of 50 deemed to separate expansion from contraction, it has fallen from 56 in December.
The manufacturing output index dropped from 56.4 in February to an eight-month low of 54.2 in March, having been at 59 in January.
CIPS said: “March saw the rate of increase in manufacturing production ease to its weakest during the current eight-month sequence of expansion. Sector data suggested that the slowdown was centred on consumer goods producers, with the pace of output growth in that industry only modest. In contrast, the intermediate and investment goods sectors both registered substantial and accelerated rates of increase.”
Growth of UK manufacturers’ new orders also slowed, with this index dropping from 56.2 to 55.4. And the rate of growth of new export orders in the sector also slowed further, in spite of continuing sterling weakness, with this index falling from 54.4 in February to 52.5 last month.
The average rate of growth of UK manufacturers’ new export orders in the opening three months of this year was the weakest since the second quarter of 2016.
CIPS meanwhile noted the pace of increase of factory gate prices had accelerated slightly in March, “moving back towards the near-record-high reached in January”.
It noted pass-through of rising raw material costs was the main factor driving up selling prices.
CIPS said UK manufacturers’ costs had in March risen again “at one of the quickest rates in the survey history”, albeit the pace of increase was the weakest since last September.
It added: “Companies blamed higher costs on the weak sterling exchange rate and rising global commodity prices.”
The survey showed the pace of employment growth in the UK manufacturing sector accelerated in March to its fastest pace since October 2015.
CIPS said solid job creation was signalled at small and medium-sized companies, while large-scale producers had recorded a modest increase in staffing levels.
Rob Dobson, senior economist at CIPS survey compiler IHS Markit, said: “The survey data suggest that the goods-producing sector made a solid contribution to GDP (gross domestic product) during the opening quarter of 2017. However, it’s clear that the expansion will be less than the buoyant 1.3 per cent rise seen in the fourth quarter of last year.
“With growth losing further momentum in March, that weaker trend is likely to continue into the second quarter. The latest survey also clearly shows that high costs and weak wage growth are sapping the strength of consumers, with rates of expansion in output and new orders for these products slowing further.”
Howard Archer, chief UK economist at IHS Markit, said it was notable slowing manufacturing expansion “appears to be primarily due to a softening in orders and output growth in the consumer sector”.
He added: “This adds to evidence that consumers are tightening their belts as their purchasing power is squeezed...We continue to believe that mounting challenges lie ahead for the manufacturing sector.”
James Smith, economist at Dutch bank ING, said: “Whilst the near-term outlook for manufacturing looks encouraging, it’s possible that Brexit uncertainty will start to weigh more heavily on sentiment over coming months. Now that Article 50 has been triggered, and given the fairly contrasting negotiation strategies outlined by UK and European leaders last week, the risk of reduced [or] altered access to European markets may begin to feel more real.
“The EU has said the negotiations should reach an agreement on exit arrangements, on issues such as the UK’s financial liabilities, before moving on to trade discussions. That means that the uncertainty facing businesses could remain elevated for some time.”
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