Manufacturing output and new orders rise at fastest rates since 1994

UK manufacturing has hit a two-and-a-half-year high, with output increasing at its fastest rate since July 1994, according to the latest data from Markit/CIPS.

The seasonally adjusted Markit/CIPS Purchasing Manager’s Index (PMI) hit 57.2 in August, up from a revised reading of 54.8 in July. A reading above 50 on the index signals expansion.

The data indicated that the UK manufacturing sector maintained its robust start to the third quarter of 2013. After the solid increases in output and new orders registered in July, August saw the momentum continue to build, with growth rates for both variables at their highest since 1994. However, cost inflationary pressures surged higher on the back of rising raw material prices.        

Manufacturing output increased at the fastest pace for 19 years, with marked expansions signalled across the consumer, intermediate and investment goods sectors. The performance of intermediate goods producers was the strongest, with the pace of output growth hitting a series record.

New orders rose for the sixth month running and to the greatest degree since August 1994. The domestic market was the main source of new contracts, although there was also a solid increase in overseas demand.

Companies linked higher order volumes to successful new product launches, promotional activity and improved client confidence. On the export side, there were reports of stronger demand from the USA, China, mainland Europe, India, Scandinavia, Brazil and Ireland.

Rob Dobson, Senior Economist at survey compilers Markit, said: “The UK’s factories are booming again. Orders and output are growing at the fastest rates for almost twenty years, as rising demand from domestic customers is being accompanied by a return to growth of our largest trading partner, the eurozone.

“Manufacturing is clearly making a strong positive contribution to the economy, providing welcome evidence that the long-awaited rebalancing of the economy towards manufacturing and exports is at last starting to take place now that our export markets are recovering.”

The main negative finding from the latest survey was a marked upsurge in cost inflationary pressures at manufacturers. Average input prices rose at the fastest rate for two years and at an above survey average pace. The month-on-month upward movement in the Input Prices Index (10.4 points) was the second-steepest in the survey history. Companies reported higher prices paid for commodities, feedstock, oil, paper, polymers and timber. Average selling prices also increased, but to a much lesser degree than registered for costs.