Engineering news
The UK manufacturing sector is facing increased costs due to the sterling exchange rate, according to the Markit/CIPS Purchasing Managers’ Index.
A major feature of the latest survey was the effect of the depreciation of the sterling exchange rate. Manufacturers reported that this has aided efforts to increase inflows of new export business, resulting in new orders from the US, the EU and China.
However, there was also a marked cost impact, reflecting higher import prices and in the costs of products based on dollar-denominated commodities such as oil.
Of the companies offering a reason for an increase in average purchasing costs, around 90% made some reference to the sterling exchange rate. Purchase price inflation subsequently rose to a 69-month peak and to its fourth-highest level since the survey began in 1992.
Companies also noted higher costs for energy and metals.
Steep input price increases were registered across the consumer, intermediate and investment goods sectors, and at small, medium and large-scale producers alike.
Inflationary pressure was also experienced at the factory gate, with average selling prices rising at the steepest pace since June 2011. This mainly reflected the pass-through of higher input costs to clients, aided by the recent firming of demand.
Despite increased costs the manufacturing sector maintained a solid rate of expansion at the start of the final quarter. October saw the seasonally adjusted Markit/CIPS Purchasing Managers’ Index (PMI) post 54.3, down slightly from 55.5 in September, to remain well above its long-run average of 51.5.
Underpinning the improvement in operating conditions were marked expansions of new business and production. New order volumes increased for the third consecutive month and at a pace close to September’s recent high. Companies reported higher demand from both domestic and export clients.
Although the slowdown in output growth was more noticeable in comparison, the rate of expansion in October still remained solid compared to series average.
The strongest performing sub-sector was intermediate goods, which saw production rise at the quickest pace in a year.
Output also continued to increase sharply at consumer and investment goods producers, albeit at markedly slower rates than in September.
Manufacturing employment increased for the third straight month during October, and has accelerated jobs growth to a one-year high. Companies linked higher employment to rising production requirements. Job creation was strongest at SMEs, while only a marginal increase was signalled for large-sized firms.
Rob Dobson, senior economist at IHS Markit, which compiles the survey, said: “The down-side of the weaker currency is becoming increasingly evident, with increased import prices leading to one of the steepest rises in purchasing costs in the near 25-year survey history.
Dobson added: “If signs of ongoing solid output expansion and rising price pressures are also experienced elsewhere in the economy, the chances of a further cut in interest rates before year end are virtually nil.
David Noble, group chief executive at the Chartered Institute of Procurement and Supply, said: “The impact of the pound’s performance against the euro and dollar was particularly felt on imports as manufacturers experienced one of the fastest rises in average costs for raw materials in the 25-year survey history. Especially highlighted were costs for flour, dairy products, steel and zinc.
"These price hikes resulted in manufacturers passing on higher prices to their customers as charges rose for the sixth consecutive month and to the steepest degree since June 2011. With rates of inflation moving higher, policymakers will need to keep a close watch and possibly change tack if needed to stay well within their targets.”