Manufacturing in UK regains lost momentum

November data from CIPS/NTC Economics indicated that the rate of expansion of UK manufacturing production recovered most of the momentum lost in the previous month.

The seasonally adjusted CIPS/NTC Purchasing Managers Index (PMI) an index designed to provide an overall snapshot of operating conditions in the manufacturing sector posted a reading of 54.4, up from Octobers ten-month low. At its current level, the PMI is consistent with a solid improvement in overall operating conditions.

The latest rise in output was underpinned by robust growth of new work received, as domestic market conditions remained solid and the trend in new export orders posted a noticeable improvement.

Inflationary pressures remained elevated in the UK manufacturing sector during November. Average factory gate prices continued to rise at a near-survey record pace, whilst the rate of purchase price inflation accelerated to a four-month high. Companies reported higher prices for oil, energy, chemicals, food products, freight and metals.

Output rose for the twenty-ninth successive month in November, with sector data signalling that production of capital, consumer and intermediate goods were all higher than in October. The sharpest expansion was recorded for consumer goods, although producers of intermediate and investment goods both saw marked accelerations in their respective rates of expansion. The seasonally adjusted New Export Orders Index posted a reading of 55.4, as respondents reported improved demand from clients operating in mainland Europe, the Far East and the Middle East.

Jobs were created in the UK manufacturing sector in November, continuing the trend observed so far throughout 2007. However, the rate of increase in employment was the second-lowest during this year, as a number of firms reported that improved efficiency, redundancy programmes and cost-restructuring initiatives had led to job cuts.

In line with rising production requirements, UK manufacturers stepped up their levels of purchasing activity in November. There were also reports that input buying had been raised to reduce the pressure of existing stocks. Subsequently, inventories of raw materials showed little change from October levels.

Robust demand for inputs placed additional pressure on suppliers capacity in November, leading to a further marked decline in average vendor performance. Shortages of certain raw materials were also blamed for the increase in lead-times, as reflected by the seasonally adjusted Suppliers Delivery Times Index, which fell to 46.1.

Backlogs of work declined at the fastest pace since July 2005, in part, as a result of firms settling contracts from existing stocks during November. The seasonally adjusted Backlogs of Work Index declined to 45.8 in November as companies reported that there remained sufficient spare capacity to deal with dual demands of work on new and previously agreed contracts. The seasonally adjusted Stocks of Finished Goods Index registered 47.9, down from 50.5 in October.

Roy Ayliffe, Director of Professional Practice at CIPS, said:

Following last months loss of momentum in the manufacturing sector, this latest data suggests that the tide has turned. Purchasing managers reported growth in new orders, particularly from the export markets, despite inflationary pressures remaining elevated.

As a result of the rising pressures on UK manufacturers and higher prices for raw materials, purchasing managers raised average gate prices at a near survey-record rate. In line with the rising production requirements, respondents stepped up the level of purchasing activity in a bid to reduce the pressure on existing stocks, which led to a decline in the backlogs of work at the fastest pace in over two years.

NTC Economist Rob Dobson said:

"The UK manufacturing sector showed resilience in November, regaining much of the momentum lost in the previous month. This suggests that part of the marked slowdown may have been solely the result of a hit to business confidence following the onset of the credit crunch. It is too early to tell if this is a true return to the robust growth seen earlier in 2007 or simply a momentary bounce. Companies benefited greatly from a strong rise in export orders in November, especially for capital goods, which could falter if the recent strength of the euro or business investment starts to unwind. The latest data provided evidence of a resurgence in pipeline inflationary pressures, but the MPC are likely to remain in either cut or hold territory until the strength of the broader UK economy can be more accurately gauged.

The December Report on Manufacturing will be published on Wednesday 2nd January 2008



The Purchasing Managers' Survey is based on data compiled from monthly replies to questionnaires sent to purchasing executives in 620 industrial companies.  The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on the regional and industry contribution to GDP.   The survey is based on techniques successfully developed in the USA over the last 60 years by the National Association of Purchasing Management.  It is designed to provide one of the earliest indicators of significant change in the economy, being issued on the first working day of each month.  The data collected are not opinion on what might happen in the future, but hard facts on what is actually happening at "grass roots" level in the economy.  As such the information generated on economic trends pre-dates official government statistics by many months.

The Purchasing Managers' Index (PMI) is based on a weighted average of five survey variables including measures of output, new orders, suppliers' delivery times, stocks of items purchased and employment.  The individual measures are converted into indexes that vary around 50, a level that indicates no change on the previous month.  An index reading below 50 indicates a decline compared with the previous month; above 50 an increase.  The individual survey indexes have been seasonally adjusted using the US Bureau of the Census X-11 programme.  The seasonally adjusted series are then used to calculate the seasonally adjusted PMI. Where appropriate, please refer to the PMI as the CIPS/NTC Purchasing Managers' Index.

The Chartered Institute of Purchasing & Supply (CIPS) is the leading international body representing purchasing and supply management professionals.  It is the worldwide centre of excellence on purchasing and supply management issues.  CIPS has over 42,000 members in 120 different countries, including senior business people, high-ranking civil servants and leading academics.  The activities of purchasing and supply chain professionals can have a major impact on the profitability and efficiency of all types of organisation.  Purchasing and supply management professionals also control huge budgets and, in the UK alone, collectively spend over 1,100 billion a year.

NTC Economics is one of the worlds largest specialist providers of business research information.  Current activity includes continuous research providing original data on economic conditions in the UK, Germany, France, Italy, Spain, Netherlands, Austria, Ireland, Greece, Russia, Poland, the Czech Republic, Turkey, Brazil, Hong Kong, China, India and Japan.  NTC surveys are widely used by governments, businesses and financial markets.

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