Manufacturing (3)

After a succession of worrisome reports and data on the UK economy, the first working day of May brought with it some much needed good news on the UK economy.UK manufacturing had a good April, if the latest purchasing managers index – or PMI – is any guide, it was a really good April. This comes as something of a relief, after recent data from the ONS pointed to contraction in the manufacturing sector earlier in the year, and what with retail sales falling, the latest GDP data on UK showing a mere 0.3 per cent growth, the UK needed some good news.

Well, the PMI delivered in bucket loads.

The headline index rose to a three-year high jumping from 54.2 in March, which was a four-month low, to 57.3. Any score over 50 is meant to suggest growth, but it is only when the index rises over 55, that we start to get all excited – and a reading close to 60 is the stuff that booms are made of.

The headline index has signalled growth for nine months in a row now.

Encouragingly, the star of the show was investment. Although the domestic economy provided the main impetus for growth, there were signs of rising demand from North America, Europe, Africa and Brazil.

But there was a slight niggle. Cost pressures are still a problem, although even in this area there was some good news with the index tracking purchase price inflation falling to a nine-month low. Then again, this index has been unusually high for some time, and April was no exception. An index tracking output prices rose, hitting 61.8 – that is worryingly high.

Rob Dobson, Senior Economist at IHS Markit, which compiles the data, commented on the study by starting on a high note. He said: "Although only accounting for 10 per cent of the economy, the upturn in the manufacturing sector represents some welcome good news after the sharp slowing in GDP seen in the first quarter. The big question is whether this growth spurt can be maintained, especially given the backdrop of ongoing market volatility and a number of political headwinds such as elections at home and abroad.”

But he warned: "Other surges seen since the middle of last year have generally proved short-lived, as weak wage growth sapped consumer spending. If this happens again it will inevitably constrain manufacturing, even as the investment and intermediate goods producing sectors continue to expand.”

On this theme, Samuel Tombs Chief UK Economist at Pantheon Macroeconomics said: "Sharp price rises, however, still threaten to choke off demand. The output prices balance edged up to 61.8 in April, from 61.7 in March, remaining in the top 10 per cent of all past readings since 2000. When the output prices balance has been this high in the past, growth in output usually has weakened over the following six months. In addition, other surveys suggest that manufacturers are investing less, despite the near-term strength of demand, due to uncertainty about post-Brexit trade ties. The recovery in the manufacturing sector, therefore, might quickly run into capacity constraints, ensuring that Britain doesn’t capitalise on the lower pound.”

Meanwhile, the latest manufacturing PMI tracking the Eurozone also did well, standing at 56.7, up on March and rising to a six-year high.

Indexes tracking manufacturing in Germany, Austria and Netherlands, did even better than the UK PMI.

Here is the breakdown:

Germany 58.2 2-month lowAustria 58.1 73-month highNetherlands 57.8 UnchangedItaly 56.2 73-month highFrance 55.1 72-month highIreland 55.0 3-month highSpain 54.5 2-month highGreece 48.2 4-month high

Chris Williamson, Chief Business Economist at IHS Markit said: "Optimism about the year ahead . . . appears unaffected by political worries, with the first four months of 2017 seeing confidence remaining elevated at the highest level since the future output series started in 2012.