UK Manufacturing Continues to Grow Strongly

Manufacturing output and new orders continued to grow robustly during September, impervious to the banking crisis that rocked confidence elsewhere.

The seasonally adjusted CIPS/NTC Purchasing Managers Index, which is designed to provide an overall snapshot of operating conditions in the manufacturing sector, remained strong at 55.1, and was down only slightly from August s thirty-seven month high.

Robust growth of production and incoming new orders was maintained in September. The rate of expansion in output eased only marginally from the previous month s thirteen-year high, reflecting the continued strength of manufacturer s order books.

The volume of new work placed with UK manufacturers rose for the twenty-sixth consecutive month in September, with the domestic market remaining the principal source of new contracts. However, at 55.5 in September, the seasonally adjusted new orders index eased slightly to its lowest reading this year.

Higher levels of new business from clients operating in Asia, Africa, Germany, Ireland and Italy led to a further solid increase in new export orders. Such levels of business were apparent despite increased competition in foreign markets, which saw the rate of increase slip to its lowest level so far recorded in 2007.

September data pointed to the fastest rate of factory gate price inflation since charges data were first collected in November 1999. The seasonally adjusted output prices index posted a reading of 57.8, and has, so far, remained at or around its series peak throughout much of this year. Companies linked higher charges to increased costs and robust demand encouraged some manufacturers to raise their prices.

Companies attributed the latest increase in charges to strong demand, which encouraged many firms to raise their prices, and also higher purchasing costs. Average input prices continued to rise at an elevated rate, albeit at the slowest rate for seven months. Higher costs were widely linked to increased oil, timber, food products and paper prices. There were, however, reports of a stabilisation of cost pressures in certain international metal markets particularly amongst investment goods producers.

After rising for the third month running, the seasonally adjusted employment index reached 52.8 in September, its highest level since May 2004. Companies indicated that they had expanded their capacity to cope with the dual demands of solid growth of new orders and efforts to reduce levels of outstanding business.

Stocks of finished goods rose for the first time in four months in September, although the rate of expansion was only slight. Where an increase in inventory holdings was recorded, this reflected, in part, lower than expected sales and preparations for the launch of new product lines.