August saw UK manufacturing output expand at the fastest rate for over six years, as companies and their clients restarted operations following Covid-19 lockdowns. New order intakes also strengthened, but the trend in employment remained weak with job losses recorded for the seventh straight month.
The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) rose to a 30-month high of 55.2 in August, up from 53.3 in July. The PMI has posted above its neutral 50.0 mark for three consecutive months.
Manufacturing production rose at the fastest pace since May 2014, reflecting solid expansions across the consumer, intermediate and investment goods sub-sectors.
The steepest growth was registered in the intermediate goods category, whereas investment goods producers saw the lowest pace of growth. Underpinning the scaling-up of output was the fastest increase in new orders since November 2017.
The domestic market remained the prime source of new contract wins, although new export orders rose moderately for the first time in 10 months, with manufacturers highlighting improved demand from the EMEA region, North America and Australia.
The main factors driving production and new orders higher have been the re-opening of manufacturers and their clients following lockdowns and a loosening of other restrictions in place to combat Covid-19.
However, manufacturing employment declined at one of the steepest rates during the past 11 years, with reductions seen across the consumer, intermediate and investment goods industries.
Input price inflation accelerated to a 20-month high in August, with rising costs linked to reduced availability for certain inputs and supply-chain disruption caused by Covid-19. Exchange rates and increased freight costs were also mentioned.
Rob Dobson, a director at IHS Markit, which compiles the survey, said: “The recovery of the UK manufacturing sector gathered pace in August. Output expanded at the fastest rate in over six years as new work intakes rose to the greatest extent since November 2017, led by an upturn in domestic demand and signs of recovering exports. Business optimism also remained encouragingly robust and close to July’s recent peak.
“However, companies report that the current bounce is mainly driven by the restarting of manufacturers’ operations and reopening of clients as Covid-19 restrictions continue to be relaxed.
“Backlogs of work fell at an increased rate, hinting at spare capacity, and the labour market remains worryingly weak, with job losses registered for the seventh straight month.
“The downturn in employment may have further to run as the Government’s furlough scheme is phased out unless demand rises sharply.
“Given the fragility of demand and uncertain outlook, both in terms of Covid-19 and Brexit, policymakers may struggle to prevent a ‘surge-then-slump’ scenario from developing.”