Mild output growth acceleration in UK masks underlying weaknesses
The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) rose to 54.4, up slightly from April’s 17-month low of 53.9, to signal growth for the twenty-second straight month.
The improved trend signalled by the PMI masked several areas of potential concern.
Although growth of production accelerated to its best during the year-so-far, this was mainly achieved through the steepest build-up of finished goods inventories in the 26-year survey history and a sharp reduction in backlogs of work.
Growth of incoming new business remained solid in May, but the pace of expansion eased to an 11- month low.
The slower trend reflected a softer increase in new work from the domestic market, as inflows of new business from overseas strengthened slightly.
Companies reported growth of new work from mainland Europe, North America, China, India, South America and Africa.
The pace of job creation in the manufacturing sector also lost momentum in May.
Employment rose only marginally, with the pace of increase the lowest in 15 months.
Higher staffing levels at intermediate and investment goods producers were partially offset by job losses at consumer goods producers.
UK manufacturers also faced rising cost inflation and supply-chain pressures during May.
The rate of increase in average input prices accelerated for the first time since January, with companies reporting that general raw material cost increases were being exacerbated by shortages developing for a number of inputs.
Average vendor lead times – a bellwether of supply-side constraints – deteriorated to the greatest extent during 2018.
Manufacturers maintained sufficient pricing power to pass on part of the increase in costs.
May saw output charges rise for the twenty-fifth successive month, with solid increases across the consumer, intermediate and investment goods sectors.
That said, the rate of selling price inflation eased to its weakest since last August.
UK manufacturers maintained a broadly positive outlook for the sector in May, with almost 52% of companies forecasting that production would rise over the coming year.
That compared favourably to less than 6% that anticipate a contraction.
Optimism was attributed to rising order intakes, growth in export markets, new product launches and planned company expansions.
That said, the overall degree of positive sentiment dipped to a six-month low. ■