Engineering news
Manufacturing started 2015 on a firmer footing as growth of output and new orders ticked higher, but still remains stuck in a “low gear”, according to the latest figures.
The sector posted a better-than-expected reading of 53 on the closely-watched CIPS/Market purchasing managers' index survey for January – where 50 separates growth from contraction. It was up from 52.7 in December.
A major factor in the sectors growth has been an ease in firms' costs due to plunging oil prices.
Manufacturing output expanded for the twenty-third consecutive month in January, underpinned by a further increasing in incoming new orders. The domestic market remained the prime drivers of improved new order inflows and solid output growth was also registered at both intermediate and investment goods producers. However, the rate of growth in the consumer good output ground to a near standstill pace.
There was a modest increase in new overseas business, representing the first meaningful improvement in new export order volumes registered for five months. Companies reported increased demand from France, Germany, Japan, the Middle East, Poland and the USA.
Rob Dobson, senior economist at Markit, said demand from the EU could soon increase as policymakers unleash a 1.1 trillion euro (£830 billion) stimulus package to revive the moribund region.
Dobson said: "UK factories reported a welcome upturn on growth of output and order books at the start of the year, but producers clearly remain stuck in a low gear.
"At this rate, the sector will provide little meaningful boost to the economy in the first quarter."
Staffing numbers rose at their lowest level for three months, though jobs are still being added at a rate of around 5,000 a month. Higher employment aided efforts to reduce backlogs of work at manufacturers, leading work-in-hand volumes to fall sharply.
January data also signalled a steep drop in average input costs. The rate of purchase price deflation accelerated sharply to its steepest for over five-and-a-half years. Exactly 31% of companies reported a decline in input costs, which many linked to the recent slump in international oil prices. This had reduced the cost of energy, transportation and oil by-products.
Lower purchase prices filtered through to average output charges in January, as companies reduced their selling prices for only the second time during the past five years. However, the rate of decline in output charges was only mild and substantially less marked than that signalled for input costs.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "Despite recent lacklustre activity, manufacturers do have reasonable grounds to hope that 2015 will be a decent year, particularly on the domestic demand front.
"A major plus for manufacturers is that sharply falling input prices are allowing them to price competitively to gain business."
Official figures show the manufacturing sector grew by just 0.1% in the final quarter of 2014, its slowest pace since the start of 2013, knocking hopes from a rebalancing of the economy.
Lee Hopley, chief economist at manufacturers' organisation EEF, said: "We expect manufacturing growth to continue in 2015, though at a slower rate than in 2014, as risks to growth remain finely balanced with renewed concerns about not only the eurozone but also the pace of activity growth in China and the US."