Outlook bright for UK manufacturers despite growth cooling at start of year

● Firms hopeful of upturn in production amid stronger order books and exports

Britain’s manufacturing sector suffered an unexpected dip in output last month amid cooling growth and rising costs but experts said the outlook remained largely positive.

The closely monitored Markit/cips manufacturing purchasing managers’ index (PMI) came in at 55.3 for January, down from December’s reading of 56.2, with economists expecting a figure of 56.5. Any reading above 50 denotes growth.

In November, the sector reached its highest level for more than four years but January saw firms confronted by a perfect storm of increased input demand and a shortage of raw materials, causing purchasing prices to hit an 11-month high.

On a brighter note, the report revealed that output and new orders had enjoyed a “solid increase” across the consumer, intermediate and investment goods sectors.

Andy Hall, head of corporate banking, central Scotland at financial giant Barclays, said: “Today’s figures shouldn’t be too discouraging despite a slowing in output as manufacturing continues to register growth month after month.

“Continuing improvement in key export markets has helped boost order books though the flip side of the coin is that with elevated input prices and supply chain costs, the growing prospect of inflationary pressure looms large.”

He added: “With an increasing reliance on exports for growth, what manufacturers need to see sooner rather than later is a Brexit transition deal to avoid the risk of a more cautious and uncertain approach to investment from the sector.”

Atul Kariya, head of manufacturing at accounting firm MHA Macintyre Hudson, said there was also an “urgent” need to address a growing skills crisis.

“While the apprenticeship levy intended to address the issue, it has barely scratched the surface, with minimal impact on encouraging workers to enter the industry,” he noted.

“A cultural change is needed within the sector, with more focus on increasing incentives among manufacturing businesses; for example through campaigns to drive more vocational training, increasing on the job training opportunities or implementing tax breaks.”

Despite the stuttering start to 2018, around 55 per cent of manufacturing firms expect production to grow in 12 months’ time, as they feel more confident about the prospect of stronger order books and overseas growth.

Overseas appetite for UK products also proved to be resilient in January.