By Daniel Hunter

The UK manufacturing sector carried its strong third quarter performance into the final quarter of the year. October saw production and new orders both rise at rates above their respective long-run averages, leading to further job creation.

The domestic market remained a prime source of new contract wins, while growth of new export business accelerated on the back of improving global market conditions.

At 56.0 in October, down from a revised reading of 56.3 in September, the seasonally adjusted Markit/CIPS Purchasing Manager’s Index (PMI) signalled an improvement in overall operating conditions for the seventh straight month. The rate of expansion was only moderately below the two- and-a-half year high registered in August.

Total new orders also rose at a rate close to August’s 19-year peak, as new export business increased at the quickest clip since February 2011. Companies reported improved inflows of new work from Asia, the USA, mainland Europe, Ireland, the Middle-East and Russia.

Growth of new orders, strengthening market conditions and stock-building led to a substantial expansion of production volumes in October. The rate of output growth nonetheless eased to a three- month low. Stocks of finished products, meanwhile, rose for the first time in over one-and-a-half years.

The increases in output and new orders remained broad-based in October, with growth of both registered in all nine of the narrow categories covered by the survey. The sharpest increases were generally seen in the Chemicals & Plastics, Basic Metal Products and ‘Other’ manufacturing sectors.

Manufacturing employment rose for the sixth consecutive month in October. Although the rate of jobs growth eased from September’s 27-month peak, it was broadly in line with the average for the current sequence of increase.
October saw average selling prices rise for the fourth straight month, reflecting a combination of rising input costs and continued growth of new orders. Over one-in-ten companies reported an increase in factory gate prices during the latest survey period.

Purchase price inflation in October eased further from August’s two-year high, but only to a pace in line with the long-run survey trend. Price rises were reported for dairy products, electronics, energy, food stuffs, paper, timber, wheat and wood.

Rob Dobson, Senior Economist at survey compilers Markit: “The Manufacturing PMI remains close to August’s two-and-a-half year high, with growth of output and new orders both trending near to recent 19-year records.

“Despite only accounting for less than 11% of the economy, the current strength of growth seen in manufacturing means the sector will still provide a major boost to the economy in October, boding well for the strong pace of economic growth we saw in the second and third quarter being sustained into the fourth quarter. The survey suggests manufacturing output is growing at a quarterly rate of around 1%-1.5%.

“Maintaining this solid expansion will be important if we are to see any real signs of the economy rebalancing, as manufacturing remains 9% smaller than its pre-crisis peak, while services have already closed the gap. The latest increase in employment also suggests that the manufacturing sector is creating jobs at a solid pace, which should help bring unemployment down in coming months.

“A sharp uptick in inflows of new export business to a 32-month high was also one of the big stories from the latest figures, signalling that the UK is no longer being left behind in the chase to benefit from improving global markets.

"A strengthening domestic market, riding on the crest of a wave from recent positive economic news, also remains a prime driver of the recovery. This should help UK manufacturing remain one of the brighter growth spots in the world manufacturing economy, as highlighted by its position at the top of the global PMI rankings throughout the third quarter.”

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