UK manufacturing defies headwinds as demand holds
Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index, which has remained resilient at 53.9 in May, from 53.7 in April, Mike Thornton, Head of Industrials at RSM UK, said: “UK manufacturing continues to show resilience despite supply chain disruption and spikes in energy prices. Bringing orders forward could be playing a part in driving production, but there are very welcome signs that manufacturers are defying headwinds.
“A robust order pipeline shows domestic and global demand remains. Manufacturers are responding by moving forward with recruitment as the employment index ticks up again. In addition, despite input prices remaining high, manufacturers continue to pass the increased cost burden onto customers.
He added: “Although, industry is demonstrating strength in the face of adversity, this will be tested as supply chain disruption and energy price volatility will start to squeeze as the conflict in Iran continues. However, as global shocks have become the ‘new norm’, UK industry has good experience navigating these challenges and is better equipped to withstand the turbulence.”
Thomas Pugh, chief economist at RSM UK, said: “The resilience of the manufacturing sector is encouraging, especially when compared with the weakness in the services PMI and the drop in the Nationwide’s measure of house prices this morning.
“However, the surge in input and output prices highlights that there is a substantial amount of cost inflation to come down the pipeline, at the same time as the economy is likely to weaken from its Q1 strength. For the Bank of England, apparent progress towards a peace deal in Iran and the drop in oil prices over the last week will be more important than some resilience in the manufacturing PMI. That means a rate hike at the next meeting later this month is off the table and it’s looking more likely that the Bank will keep interest rates on hold all year.”