Manufacturing capacity looks uncertain as growth in output starts to slow

Manufacturing orders have grown at the slowest rate in eight months, the market analyst Markit reports in its monthly economic survey.

Raw materials and imported supplies have become more expensive due to a weak sterling, and though this is encouraging exported goods, demand is slowing at the consumer end of the supply chain. Widespread winter disruption in logistics also created a backlog on output, dragging back buying in industry.

Output grew at the slowest pace for 11 months over February, as demand waned across the consumer, intermediate and investment goods sectors. However, there were more new orders over February than January. Growth in labour hiring also continued at a higher rate.

Stephen Cooper, Head of Industrial Manufacturing at accountants KPMG, said: “Whilst February’s results point to a mixed view for UK manufacturing, the industry… [has] continued positive news on the demand and job growth front.

“However, supply chain constraints and continuing concerns around inflationary pressures, which are also reflected in the Eurozone results, mean businesses need to continue to work hard to manage these factors.”

Despite the news of slowing growth, factory managers remain positive in outlook for 2018, with 56 per cent telling Markit they expect higher output in a year, changing little on snetintment expressed in January’s 28 month high in business optimism.

Rob Dobson, Director at IHS Markit, said: “The February survey provided mixed signals on the health of the UK manufacturing sector. The PMI’s Output Index fell to its second-lowest level since the EU referendum and, based on its past relationship with official ONS data, is consistent with only a subdued 0.4 per cent quarterly pace of growth in production volumes. This would represent a marked downshift from the 1.3 per cent increase signalled for the final quarter of 2017, providing a further brake on the rate of expansion in the wider economy.”