UK manufacturing slows as consumer strength wanes

British factory output slid in the first three months of the year as stagnating wages and increased inflation meant shoppers were less willing to splash out.

A worker brazes a bike frame at a bicycle factory in west London. UK manufacturing has slowed so far this year. Luke MacGregor / Reuters
Powered by automated translation

British manufacturing lost some of its momentum last month, as export orders grew more slowly and demand for consumer goods faltered against a backdrop of rising inflation pressures, a survey showed on Monday.

Sterling’s tumble following June’s vote to leave the European Union helped manufacturers enjoy their fastest annual growth in three years during the final quarter of 2016. This capped a year when Britain’s economy grew 1.8 per cent, the second-fastest rate among the world’s main advanced economies.

But the financial data company Markit said its purchasing managers’ index (PMI) for the sector suggested manufacturing growth slowed in the first three months of this year.

March’s manufacturing PMI slipped to 54.2 from a downwardly revised 54.5 in February, undershooting economists’ average forecast of 54.6 in a Reuters poll.

The index is well above its long-run average of 51.6, but IHS Markit economist Rob Dobson said the fall – the third in a row since the series hit an 18-month high in December – was likely to herald a further moderation in growth.

“High costs and weak wage growth are sapping the strength of consumers, with rates of expansion in output and new orders for these [consumer] products slowing further,” he said.

A separate survey overnight from the accountants Deloitte showed that optimism among chief financial officers of major UK-based businesses was its highest since mid-2015, although their appetite for risk was only half the level of before the Brexit referendum appeared on the horizon.

Fast-rising inflation has led to British households’ incomes stagnating in real terms, and data on Friday showed households were saving the smallest share of their income since records began more than 50 years ago.

By contrast, Markit said manufacturers that produced investment goods such as machinery and intermediate products that go into other goods were still seeing substantial growth.

But overall output growth fell to its lowest since July, when the PMI briefly showed a sharp contraction in output in the immediate aftermath of the Brexit vote.

Markit said domestic demand was the main source of new orders, while growth in export orders fell back.

Raw material costs rose at the slowest rate in six months, although input cost inflation remained far above levels seen before the referendum. Factories showed little hesitation in raising the prices they charged customers, which increased at the second-fastest rate since 2011.

Official data last month showed factory gate inflation rose by 3.7 per cent in the year to February, the biggest rise since December 2011.

* Reuters

Follow The National's Business section on Twitter