UK Manufacturing: Positive signs…..

The signs are encouraging for the UK Manufacturing sector as the most recent Markit/CIPS purchasing managers’ index released today indicates that UK factories are performing again.

The index increased to 57.2 in August, up from 54.8 in July (where a response greater than 50 signals growth). This is the fifth consecutive month of expansion. Orders and output are growing at the fastest rates for almost 20 years, as rising demand from domestic customers is being accompanied by a return to growth of our largest trading partner, the Eurozone.

The sector therefore continues to build on the solid 0.7% expansion registered during the second quarter, and growth is predicted to surpass the 1% mark in the third quarter. Manufacturing is clearly making a strong positive contribution to the economy, providing welcome evidence that the long-awaited rebalancing of the economy towards manufacturing and exports is at last starting to take place now that our export markets are recovering.

A healthy bundle of numbers suggests that Britain’s economy is on the mend. Surveys that measure consumer confidence show shoppers are feeling positive: vital in an economy in which consumption makes up two-thirds of spending. Surveys suggest managers’ purchasing plans are at record highs not just in manufacturing, but across construction and services too.

But it pays to remember that both the manufacturing and construction sectors are still more than 10% below their 2008 peaks. With this level of spare capacity, a bout of further growth is needed to install real confidence in the market before CFO’s stop squirreling cash onto their Balance Sheets, and action acquisition-led growth strategies. This confidence should be boosted by Mark Carney’s announcement that interest rates will stay low until the recovery is well established giving greater assurance to households to spend responsibly and businesses to invest wisely.

Undoubtedly, these latest set of results will help to continue alleviate the concerns of CFOs across the industrials sector and hopefully bridge the confidence gap between well performing industrial companies and internal growth strategies.

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