Manufacturing PMI at two-and-a-half-year high

Latest data indicated that the UK manufacturing sector maintained its robust start to the third quarter of 2013. After the solid increases in output and new orders registered in July, August saw the momentum continue to build, with growth rates for both variables at their highest since 1994. However, cost inflationary pressures surged higher on the back of rising raw material prices.

The seasonally adjusted Markit/CIPS Purchasing Manager’s Index hit a two-and-a-half year high of 57.2 in August, up from a revised reading of 54.8 in July (previously reported as 54.6). The PMI has signalled expansion for five successive months.

Although the output and new orders components contributed strongly to the latest PMI reading, the positive influences of employment and suppliers’ delivery times were muted in comparison and stocks of purchases showed a modest decline.

Manufacturing output increased at the fastest pace since July 1994, with marked expansions signalled across the consumer, intermediate and investment goods sectors. The performance of intermediate goods producers was the strongest, with the pace of output growth hitting a series record.

New orders rose for the sixth month running and to the greatest degree since August 1994. The domestic market was the main source of new contracts, although there was also a solid increase in overseas demand.

Companies linked higher order volumes to successful new product launches, promotional activity and improved client confidence. On the export side, there were reports of stronger demand from the USA, China, mainland Europe, India, Scandinavia, Brazil and Ireland.

The main negative finding from the latest survey was a marked upsurge in cost inflationary pressures at manufacturers. Average input prices rose at the fastest rate for two years and at an above survey average pace. The month-on-month upward movement in the Input Prices Index (10.4 points) was the second-steepest in the survey history. Companies reported higher prices paid for commodities, feedstock, oil, paper, polymers and timber. Average selling prices also increased, but to a much lesser degree than registered for costs.

Job creation was signalled by UK manufacturers for the fourth month running in August. Additional staff hires reflected stronger order inflows, with positions filled in production, research, management and support teams. The improved performance of the sector also encouraged a marked step up in purchasing activity, with input buying volumes increasing at the fastest pace since October 2010.