'Solid' manufacturing growth amid fears over consumer spending

A slowdown in consumer goods production led to UK manufacturing output growing at its slowest pace for eight months in March.

Below analysts' expectations

At 54.2, the Markit/CIPS purchasing managers' index (PMI) for March remained well above the 50 reading that separates growth from shrinkage. But the reading was down from 54.5 in February and below analysts' expectations of 55.0.Consumer goods manufacturing recorded “only modest” growth, a reflection of growing concerns among Britons over rising inflation and weak wage growth.

A solid quarter of manufacturing expansion

Lee Hopley, chief economist at EEF, the manufacturers’ organisation, commented, “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.”

Depreciation in sterling has come at a price

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement and Supply, added, “Despite the confident mood, the depreciation in sterling which has supported exporters has come at a price.“The reduced buying power of the pound has led to the 11th consecutive rise in input costs with consumers feeling the effects in the form of higher prices on the high street. Supplier delivery times have also begun to lag, clogging up the supply chains of British manufacturing.“With the rate of new order growth showing early signs of easing in March, manufacturers must act to ensure they are not locked into costly contracts. Now is not the time for manufacturers to rest on their laurels.”The weakness of sterling coupled with increasing commodity prices resulted in manufacturers facing one of the steepest rises in input costs in the survey's history last month.

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Even so, confidence in the sector rose to a ten-month high, with more than half of manufacturers forecasting production would rise over the coming year, resulting in an increase in staff hirings during March. Only six per cent anticipated a decline in production.Meanwhile, the PMI for the global manufacturing sector showed that producers were continuing to build on the recovery seen in the second half of last year.The JP Morgan-IHS Markit index held steady at 53.0 between February and March, remaining at its highest level seen in almost six years.“The expansion remained broad-based by product type, with PMI readings for the consumer, intermediate and investment goods sectors all signalling further solid growth,” said IHS Markit.The index was boosted by a rapid pick-up in the eurozone. There was solid growth in the US, Japan, UK, Russia and China, and continued contractions in South Korea and Brazil.For related news and features, visit our Enterprise section.Access hundreds of global services and suppliers in our Online Directory  Get access to our free Global Mobility Toolkit

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