Outlook grim after UK manufacturing activity cools down

● Growth slows in first quarter of 2018 as experts warn of domestic headwinds

Activity in Britain’s manufacturing sector took a knock in the opening three months of the year and could be further dented by a slowdown in domestic demand, economists yesterday warned.

The latest Markit/cips UK purchasing managers’ index (PMI) for the sector revealed a reading of 55.1 for March, up fractionally on the 55 recorded in February, and surpassing forecasts for 54.7.

Any reading above 50 denotes growth. However, the upturn was not enough to bolster first-quarter results.

The report noted that the average reading over the opening quarter as a whole was the weakest in a year, suggesting that the underlying pace of expansion has been generally slower since the start 2018.

There were “solid inflows” of new work from both domestic and overseas markets last month thanks to successful marketing campaigns, the weaker pound and improved sales volumes to existing clients – though the rate of new export orders eased to a five month low.

Duncan Brock, group director at the Chartered Institute of Procurement & Supply (Cips), said: “Without a significant rise in new orders, and if supply chains are still disrupted by shortages or the weather, for the next few months it’s anticipated that there will be a continued muted pace of growth.

“A rather apathetic prediction, but while optimism remains high and the sector continues its efforts to increase marketing activity and launch new products, everything could change.”

Howard Archer, chief economic advisor to the EY Item Club think-tank, said domestic conditions could prove particularly difficult in the coming months.

“The manufacturing PMI averaged 55.1 in the first quarter of 2018, which was down from an average of 56.8 in the fourth quarter of 2017 and was the weakest performance since the first quarter of 2017,” he noted.

“While still a very decent performance, this points to the manufacturing sector losingsomemomentumfromthe heady growth rates seen in the second half of 2017.

“On the domestic demand front, still limited (albeit gradually improving) consumer purchasing power and business caution over investment amid significant uncertainties are a challenging combination for manufacturers,” Archer added.

“This has been reinforced by increased prices for big-ticket consumer durable goods and capital goods. The outlook for manufacturing looks decent on the foreign demand side, but domestic conditions could prove challenging over the coming months.”

Staffing levels rose for the 20th successive month, but did so at the slowest rate during the year so far.

Price pressures eased in March as input costs and output charges rose at their weakest rate in the year to date – though the report highlighted that the pace of inflation was “still relatively strong”.