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UK Manufacturers Finish 2017 with a Flourish

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The UK’s manufacturing industry finished 2017 with a flourish, with a strong performance propelling the sector to achieve its best quarter for more than three years. 

Product Orders Propel Expansion

The indicator from the Markit/CIPS survey of manufacturing companies’ purchasing managers fell to 56.3 in December, from a 51-month high of 58.2 in November, weaker than analysts’ expectations of 58.0, but above the 50 level which indicates expansion.

“Although growth of output and new orders moderated during December, rates of expansion remained comfortably above long-term trend rates,” said Rob Dobson, director of IHS Markit.

The figures suggest new orders have expanded over the past 17 months and come as UK firms report increased production levels in response to new orders and new product lines overseas.

Strong Sales of Investment Goods

Producers of intermediate and investment goods reported a surge of growth throughout December, spurred by increased export orders from the US, Europe, Middle East and elsewhere as the world economy grows at a brisk clip.

The OECD club of mostly-rich nations forecasts global GDP to grow by 3.6% in full-year 2017, up from 3.1% in 2016, aided by the Eurozone recovery and continued Chinese expansion.

But the growth in exports of intermediate and investment goods was offset by a slowdown in the growth of manufacturers making consumer goods.

This may reflect decreased spending power among UK consumers because of the plunge in the value of the pound since the Brexit vote and resulting sluggish wage growth and surging inflation.

The average reading for the PMI overall for the final three months of 2017 was 57.0, the best quarter since 2014.

UK Benefits from EU Trade

UK manufacturers appear to be benefiting from robust economic growth in the Eurozone. The Eurozone manufacturing PMI compiled by Market reached 60.6 — the highest ever level recorded in December.

British goods makers saw the strongest growth in sales of partly-finished products bought by other manufacturers to compile finished products, such as car bonnets, suggesting increased demand among European firms.

Brexit a Risk

But that growth may stall as Britain negotiates existing the single market. UK firms will hope they can grow exports to other continents.

But exports of goods to non-EU countries decreased by £1.7 billion (3.8%) between the three months to June 2017 and the three months to September 2017.

The data are significant because manufacturing accounts for 10% of Britain’s economic output.

The survey provides an early indication of overall UK economic growth. Goldman Sachs’ economists estimate the PMI suggests a UK growth rate of around 0.5% in the final three months of the year.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.