UK Manufacturing Output Starts Q4 On A Positive Note

-UK October Manufacturing PMI 56.3 Versus Revised 56.0 in September

By Jamie Satchithanantham

     LONDON (MNI) - UK manufacturing sector activity kicked off the final

quarter on a solid footing despite more intense price pressures, the IHS

Markit/CIPS Purchasing Managers' Index (PMI) showed.

     The headline manufacturing PMI rose to 56.3 in October from an upwardly

revised 56.0 (previously 55.9) in September. The rise meant that the index has

sat above the neutral-50 mark for fifteen consecutive months and suggests that

UK manufacturing growth remains solid amid robust domestic and foreign demand. 

     Production rose at an identical rate versus that registered in September

and was broad-based by sector with intermediate and investment good producers

reporting strong and accelerated uptake of new business. In the consumer goods

space, however, growth of new orders eased to a seven-month low and business

optimism to its weakest level year-to-date.

     New orders also picked up in October, recovering part of the growth ceded

last month, with the domestic market the prime source of new contract wins. New

export orders also continued to rise, though at the weakest rate in four months.

     Factory gate input prices continued to weigh on producer in October, with

input costs increased by the greatest extent in seven months which relayed into

output prices rising at the steepest pace since April. 

     "UK manufacturing made an impressive start to the final quarter of 2017 as

increased inflows of new work encouraged firms to ramp up production once

again...The domestic market remained strong, whereas new export orders increased

at a slightly slower pace, the latter showing signs of being hit by the recent

strengthening of sterling," Rob Dobson, Director at IHS Markit, said.

     "Higher demand for raw materials, combined with increased supply-chain

constraints, mean annual input price inflation is moving back into double-digit

rates, which may feed through to higher pressure on consumer prices in coming

months," he added. 

     On October 23, the Confederation of British Industry's (CBI) Industrial

Trends Survey reported a softening in both order books, output expectations and

export orders through October. 

     The headline total orders balance fell to -2 last month from 7 in

September, the weakest reading since November 2016 (though still above the long

run average of -19), while the order expectations balance (which has the best

relationship with the official data) slipped to 19 from 28. Export orders,

boosted by the weaker pound and stronger global demand, did grow in October but

was down from the levels set in September.  

     After a period of divergence between the official manufacturing output

data, procured by the Office of National Statistics, and data surveys, carried

out by the likes of Markit and the CBI, the numbers are starting to move in the

same direction again.

     In July and August, official output was up 2.7% and 2.8% respectively after

a string of disappointing outturns earlier in the year.     

     This, the first of three PMIs this month, comes on the eve the release of

the Bank of England's latest set of quarterly forecasts and monetary policy

decision. 

     Should the Bank decide to hike Bank Rate by 25 basis points on 'Super

Thursday', priced in at over 90% by markets, attention will turn to how this

will affect both households' appetite to consume and businesses' appetite to

invest with a detrimental impact on both due to provide a drag on UK economic

growth.      

     "The continued robust health of manufacturing and rising price pressures

will help cement expectations of the Bank of England hiking interest rates for

the first time in a decade as Thursday's announcement approaches," Robson added.

--MNI London Bureau; +44 203-586-2226; email: jamie.satchithanantham@marketnews.com

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