UK Manufacturing PMI strengthens in December

Posted on: January 4th, 2021 by Phil Matten

The December IHS Markit/CIPS UK Manufacturing PMI® reading was the highest in more than three years. However, this mainly reflected a temporary boost from last-minute preparations before the end of the Brexit transition period, as customers, especially in the EU, brought forward purchases – raising concerns of a correction early in 2021.

Near record increases in input stocks and purchasing activity, as well as the pulling forward of orders, pushed the seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® to 57.5 in December, compared with 55.6 in November. 

Of the factors contributing to the headline PMI, the most significant in December, were lengthened supplier delivery times and increased stock purchases. Manufacturers reported substantial disruption to supply chains, only previously exceeded during the first coronavirus wave. Raw material shortages, port delays, freight capacity issues, as well as end of transition concerns, contributed. Consequently,  average input costs rose at the sharpest in two-and-a-half years, with manufacturers responding with increased output charges.

Nevertheless, underlying manufacturing output did rise for the seventh consecutive month, albeit at a slower rate than in November. The strongest expansion was in intermediate goods producers, with consumer goods output returning to growth following two months of contraction. The investment goods sector also registered growth. 

December also saw new orders from both domestic and export markets rise, at the quickest rate since August. According to the survey, this reflected clients bringing forward orders in the face of end of transition and port delay concerns. 

Employment levels fell for the eleventh consecutive month. Positive outlook sentiment was linked to ongoing economic recovery, hopes for a reduced Covid-19 impact, reduced concerns about Brexit and investment planning. However, business optimism still eased, with 56% of manufacturers forecasting higher output over the next 12 months (November 61%). 

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