Manufacturers continue to make steady progress, despite slight wobble in April

Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index which has fallen to 49.1, Mike Thornton, national head of manufacturing at RSM UK, said: “The manufacturing PMI in April saw a slight fall to 49.1, following a steady upward trend in Q1 2024 which culminated with last month’s rise to above 50 – the highest level in 20 months. Although April’s headline PMI has fallen below 50, this is likely to be a slight monthly blip, rather than a major reversal on progress. In addition, the sector has been starting to show signs of stabilisation in recent months and is in a much stronger position than this time last year, having been in contraction for most of 2023.

'However, while manufacturers are operating in a less volatile economy, input prices are starting to rise again, measured at 54.8 in April, the highest level since February 2023. As an energy intensive industry, the worldwide squeeze on energy supplies due to the war in Ukraine and conflict in the Middle East will add further cost demands. Similarly, the 10% increase in national minimum wage will also have impacted businesses. Against these pressures, it was reassuring to observe an uptick in output prices to 53.1, suggesting that manufacturers have almost immediately passed these increases to customers.'

Tom Pugh, economist at RSM UK, said: 'While the slight drop in S&P/CIPS manufacturing PMI in April was probably a blip in an otherwise upward trend, it does serve as a reminder of how fragile the economic recovery is. The economy is only just emerging from recession and although inflation will be back at the 2% target soon, volatility in energy prices and strong growth in labour costs are good reminders that we aren’t out of the woods yet. However, there are good reasons to expect spending on goods to improve over the next year.

'First, households’ real disposable incomes are set to rise rapidly as of last month as inflation drops back to 2% and tax cuts kick in. This will boost overall consumer spending and retail sales volumes. What’s more, consumer confidence should continue to rise ensuring that households spend most of their new income.

'Second, inflation is especially weak within retail sales. Indeed, the price of retail goods increased by just 2.2% in March annually, the slowest rise since early 2021. This means that continued strong nominal spending will increasingly show up in sales volumes.'

Third, retail sales volumes are still about 2% below their pre-pandemic level. This is partly a hangover after a huge splurge in spending on goods during the pandemic. But after two years of reduced spending on retail goods, households will need to start replacing some of those things bought during the pandemic. What’s more, as the housing market starts to recover and transactions increase, this will boost demand for household goods.'