MNI DATA: UK Jan Manufacturing PMI Cools; Below MNI Median

--CIPS/IHS Markit UK Manufacturing PMI 52.8 in Jan vs 54.2 in Dec

By Jai Lakhani

     LONDON (MNI) - The UK CIPS/IHS Markit manufacturing sector PMI declined 1.4

points to 52.8 in January, below the MNI economist survey median of 53.5. 

     The PMI continues to signal underwhelming manufacturing activity, with the

reading at a three-month low. It is also the second weakest reading since July

2016, (the first survey month following the EU referendum result).  

     Evidence of stockpiling was evidenced through the stocks of purchases

rising at a survey-record rate, with anecdotal evidence showing companies

increased purchasing activity and stockpiling of inputs at warehouses. 

     "The start of 2019 saw UK manufacturers continue their preparations for

Brexit. Stock of inputs increased at the sharpest pace in the 27-year history,

as buying activity was stepped up to mitigate against potential supply-chain

disruptions in coming months," said Rob Dobson, Director at IHS Markit. 

     According to IHS Markit, the trend in production volumes was the weakest

registered during the past two-and-a-half years. Whilst consumer goods producers

output rose, this was more than offset by weaker expansion in intermediate goods

sector and the first decline in investment goods output since July 2016. 

     In fact, Dobson said that despite the temporary boost from purchase

activity, "the underlying trends in output and new orders remained lacklustre at

best". This was backed up by the fact that the rate of increase in new work from

domestic sources eased and growth of new export business slumped to

near-stagnation. 

     --DEMAND WEAK 

     Demand in both the UK and overseas appeared to slow in January and reports

of growth in new orders was often down to clients making purchases to build up

stocks in advance of Brexit. 

     The slight increase in foreign demand appeared to stem from the USA,

Europe, Brazil and Canada. 

     --EMPLOYMENT CONCERNS

     Worryingly, the fragility in new orders and production manifested itself

into the employment indicator. As firms increased their inventories at the

fastest pace on record, they also appeared reluctant to hire more workers with

the employment indicator falling for only the second time in the past 30 months.

     --SUPPLY-SIDE COST PRESSURES ELEVATE DUE TO INCREASE IN ORDERS

     As a result of stockpiling, there was a noted increase in demand for raw

materials. However, this coincided with input shortages and supplier capacity

issues resulting in a further marked lengthening in average vendor lead times

during January.

     Surprisingly, despite higher raw material costs, suppliers raising their

prices and the exchange rate, inflation of input prices eased to a 32-month low.

Average selling prices were also up at a slower pace. 

     --CONFIDENCE FRAGILE

     The latest survey provided a mixed picture regarding the outlook for the UK

manufacturing sector.

     On balance, companies remained confident, with 46% still forecasting output

would be higher in one year's time and less than one-in-ten expecting a

contraction. However, the overall degree of optimism dipped to a 30-month low,

as "Brexit uncertainty, the exchange rate and signs of a European economic

slowdown all weighed on sentiment".

--MNI London Bureau; +44 203 865 3828; email: jai.lakhani@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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