Manufacturing slows slightly in Q1 - rising costs a concern

British manufacturing has lost pace over March, and could weaken over the next quarter if inflation pushes prices, a UK economy survey has predicted.

Markit/CIPS Purchasing Managers’ Index (PMI) showed a decrease from 54.2 from 54.5 from February into March, but remained about its neutral mark of 50 for the eighth successive month. Manufacturing output has been hindered by a lack of demand for consumer goods.

Lee Hopley, Chief Economist at EEF, the manufacturers’ organisation, said: “Today’s data shows a solid quarter of expansion for manufacturing with production levels and new orders held firm, supported by strengthening activity in key markets, particularly Europe. That said, the indicator may well provide a snapshot of what we can expect in the wider economy over the coming year, with a slight deceleration in activity driven mainly by consumer spending tempered by rising prices and squeezed real incomes.

“Today’s data certainly doesn’t set off any alarm bells but it does signal that the consumer, one of the big props of UK growth in recent years, is already under the cosh and if there is any loss of momentum in the global economy, these strong manufacturing indicators could falter.”

Rob Dobson, senior economist at Markit, said: “The survey data suggest that the goods-producing sector made a solid contribution to GDP during the opening quarter of 2017. However, it’s clear that the expansion will be less than the buoyant 1.3 per cent rise seen in the fourth quarter of last year.

“With growth losing further momentum in March, that weaker trend is likely to continue into the second quarter. The latest survey also clearly shows that high costs and weak wage growth are sapping the strength of consumers, with rates of expansion in output and new orders for these products slowing further.”

UK firms' confidence has so far remained high, as a weaker pound has helped keep exports competitive, though so far, the domestic market has been the main source of new business for manufacturers, increasing the inflation worries.