Member Article

Glimmers of promise among manufacturers

The UK manufacturing sector showed signs of stabilising in the second quarter of 2012, as production levels rose, along with new orders.

Following two months of contraction, April showed modest recovery in production volumes and “mild” gains in new contracts, according to the Markit/CIPS Purchasing Manager’s Index.

The consumer and investment goods sectors drove some growth, and manufacturers benefited from increased sales to North America, the Middle East, Latin America and Australia.

Average purchasing prices were down slightly in April as companies reported paying lower commodity and fuel prices. However, import prices were impacted by the ongoing weakness of the sterling.

Job losses in the sector were recorded for a third month running, although the rate of job loss was only marginal and weaker than in the previous two months.

Rob Dobson, senior economist at survey compilers Markit: “Following the poor start to the year, when manufacturing acted as a drag on the economy in the opening quarter, it is welcome to see the sector showing signs of stabilising in April. With forward looking indicators such as new orders and the demand-to-inventory ratio also ticking higher, the sector should at least be less of a drag on broader GDP growth in the second quarter.

“Manufacturers report that the domestic market is just about holding its head above water, but was still a key cause of disappointingly weak demand, while a solid improvement in new export orders was the real surprise.

“Companies made further strides into selling to faster growth markets such as Latin America and the Middle East, as well as success in traditional targets like North America and Australia. This helped offset the ongoing drag on export performance from our largest trading partner, the euro area.”

David Noble, CEO at the Chartered Institute of Purchasing & Supply: “A march of the makers may be on its way following the first rise in export sales for a year with the

Americas, Middle East and Australia making up for lacklustre demand in Europe giving the manufacturing sector something to savour.

“The sector’s steady performance in April, which saw an increase in output, was supported by easing prices for fuel and commodities, which is welcome news. However, increased prices elsewhere and the weak currency are a reminder of the difficult economic conditions which remain.

“The consumer goods sector is leading the revival in response to overseas demand and an improved performance in the investment goods industry bodes well. Intermediate goods, the bellwether of the sector, continue to struggle, but even their outlook has improved. Across the board, firms have increased their output prices, signalling some confidence in the sector, as they look to recoup Q1 losses and protect their profit margins.

“We should not forget that the sector is not in rude health. A weak Q1 has led to continued job losses in April reminding us that the tough times will undoubtedly continue. Businesses remain cost cautious, but the latest figures are at least a chink of light in the tunnel.”

Stephen Gifford, CBI director of Economics, said: “These figures echo our own survey, showing signs of stabilisation in the manufacturing sector, with companies expecting a pick-up in business over the next few months.

“Boosting manufacturing exports is crucial to the strength of the sector so we want the Government to introduce a tax incentive for small and medium-sized exporters to give them a leg up into new markets.”

This was posted in Bdaily's Members' News section by Tom Keighley .