23 Jul 2024


UK orders rise for the first time since 2007

The latest reports on the UK manufacturing sector show that it is continuing to perform well, with the monthly Purchasing Managers’ Index (PMI) hitting a 15½-year peak and the Confederation of British Industry reporting the first rise in domestic orders for 2½ years.

“Manufacturers reported a flying start to the second quarter, with the weak pound boosting export growth to the fastest for at least 15 years,” says Rob Dobson, chief economist at Markit, which compiles the PMI with the Chartered Institute of Purchasing and Supply. “The data points to manufacturing output growing by as much as 2% in the latest three months, suggesting the sector will provide a strong contribution to second quarter gross domestic product.

“The sheer strength of the rebound in demand for manufactured goods is highlighted by an unprecedented increase in backlogs of work – the largest for at least 11 years – which, in turn, has encouraged manufacturers to raise staffing levels to the greatest extent for three years,” Dobson adds. “The feeding-though of rapid output growth to job creation is particularly good news, and bodes well for the sustainability of the UK economic recovery.”

CIPS chief executive Officer David Noble describes the performance of the UK manufacturing sector as “hugely encouraging, as it is proving surprisingly resilient. It is now growing at a rate of knots – maintaining the momentum gained in Q1 and faring much better than we could have dared hope for this time last year.

“The real turning point will come when manufacturers feel confident enough to increase their investment and start to build capacity again,” Noble suggests. “The good news is there are already signs this is starting to happen as employment levels are slowly rising on the back of strained capacity and backlogs of work reported for the first time in over a decade.”

The CIPS findings are backed up by the latest quarterly industrial trends study from the CBI which reveals rising orders for UK manufacturers in the three months to April. Of the 439 firms surveyed, 34% said the volume of total orders rose, while 23% said they fell. The balance of +12% is the first significant growth since January 2008.
The improvement in orders was driven by strengthening overseas demand. A third of firms are reporting a rise in export orders, and 12% a fall, giving the strongest balance since July 1995. A modest rise in home-grown demand also contributed to the rise in orders, with 30% of firms reporting an increase in domestic orders, and 25% a decrease. The resulting balance of +5% marks the first growth since October 2007. However, the CBI points out that orders and output are recovering from 30-year lows, and that order books remain below normal.

“Manufacturing appears to be on an upward trend,” says the CBI’s chief economic adviser, Ian McCafferty. “After eight consecutive quarters of falling domestic orders, home-grown demand is slowly starting to recover.
“The appetite for UK-made goods overseas is growing strongly, thanks to the relative weakness of Sterling and the gradual recovery of the global economy,” he adds. “With demand expected to strengthen further and stocks running low, UK firms are planning to step up production in the next quarter.

“Given the improving picture, manufacturers are feeling more optimistic about the business situation,” McCafferty says. “However, sharply rising raw material prices are pushing up costs, and firms plan to raise prices over the next three months to alleviate some of the squeeze to profit margins.”

Another CBI survey, focusing on small and medium sized UK manufacturers, also shows that demand for their goods is improving at home and abroad, and that production has stabilised.

“The UK’s smaller manufacturers are finally reaping the benefits of all their hard work as well as a relatively weak currency,” comments Russel Griggs, chairman of the CBI’s SME Council. “Exports are growing steadily, domestic demand and production are stabilising, and firms are feeling more upbeat about prospects. With demand expected to grow in the coming months, manufacturers are thinking about taking on extra staff over the next three months.”
Of the 402 manufacturers surveyed for the quarterly SME trends study, 36% reported a rise in the volume of orders in the three months to April, and 26% a fall. The resulting balance of +10% is the first significant growth since January 2008. A better-than-expected rise in export orders, thanks to the relative weakness of Sterling, accounted for much of the improvement.

A third of firms (33%) said export order volumes increased, 15% said they declined, giving the strongest positive balance since July 1995. The volume of domestic orders is also stabilising, with 31% of the companies surveyed reported a rise, and 28% a fall.

There has been little change in the numbers of people employed by the SME sector after six consecutive quarters of job cuts and firms expect to increase their headcount marginally in the next quarter. If this happens, it will be the first increase in employment since July 2008.