UK manufacturing exports rise but price pressures grow

UK manufacturing exports rise but price pressures grow

31 minutes ago

UK manufacturing remained on a “firm footing” last month, with the weaker pound boosting exports, according to a closely-watched survey.

However, the fall in the pound also had a “marked” impact on costs, with the price of imported goods rising.

Markit said about 90% of companies reporting rising import costs made reference to the exchange rate.

The latest Markit/CIPS purchasing managers’ index (PMI) for manufacturing stood at 54.3 last month.

That was down from September’s figure of 55.5, but still above the 50 mark which indicates expansion.

Price inflation for goods being bought by manufacturers hit its highest rate for more than five years, and was at its fourth-highest since the survey began in 1992.

‘Defying expectations’

Rob Dobson, an economist at Markit, said: “The UK manufacturing sector remained on a firm footing in October and should return to growth in the fourth quarter.

“Despite slowing from September’s highs, growth of output and new orders continued to defy expectations, rising at marked rates and supporting the fastest job creation in a year.

“The main topic of the latest PMI survey was, however, the impact of the sterling depreciation on manufacturers.
“On the positive side, the boost to competitiveness drove new export order inflows higher, providing a key support to output volumes.

“The downside of the weaker currency is becoming increasingly evident, however, with increased import prices leading to one of the steepest rises in purchasing costs in the near 25-year survey history.”

A technician spot welds a body panel of a Nissan car on the production line at Nissan’s Sunderland plantImage copyrightREUTERS

The Bank of England meets this week for its latest policymaking meeting, although it is not expected to announce another cut in interest rates.

“If signs of ongoing solid output expansion and rising price pressures are also experienced elsewhere in the economy, the chances of a further cut in interest rates before year-end are virtually nil,” Mr Dobson said.

Figures released from the Office for National Statistics last week indicated that the economy grew by 0.5% in the July-to-September period. That was slower than the 0.7% rate in the second quarter of the year, but was stronger than expected.

Martin Beck, senior economic adviser to the EY Item Club, said: “With activity recovering through Q3, the PMI comfortably in expansionary territory and the renewed plunge in the value of sterling likely to continue to bolster export demand, we would expect to see the manufacturing sector contribute positively to GDP growth in Q4.”

However, Samuel Tombs, chief UK economist at economic research consultancy Pantheon Macroeconomics, was less optimistic.

“We continue to expect manufacturers to struggle to capitalise on the weak pound in the near term, given the usual delays involved in finding new business, renegotiating contracts and investing in extra capacity,” he said.

“As a result, a slowdown in domestic demand likely will ensure that the recovery in the manufacturing sector disappoints over the coming months.”

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