Positive manufacturing performance encourages job creation

Tuesday 5 August 2014

The manufacturing sector in the UK is continuing its run of growth, although at a less impressive rate, driving job creation within the industry.

The Markit/CIPS Purchasing Managers' Index for July showed production and new orders are both rising at a robust rate. This is good news for contractors, who will see demand for their services strengthen further.

However, the pace of expansion has cooled from the growth spurt noted in the first half of the year. The index stood at 55.4 last month, down from 57.2 in June. This is the lowest reading in a year.

Nevertheless, the reading remains above the index average of 51.5.

Yael Selfin, economics director at KPMG, said: "It is too early to say if the latest PMI figures represent a slight pause for breath in the otherwise heartening manufacturing recovery, or signal that deeper issues such as strong exchange rate and uncertainties in some of UK trading markets are taking a more permanent hold. Either way, the survey still points at levels of activity well above historic average, which should help support overall growth and some rebalancing of the UK economy."

Considerable production growth took place across consumer, intermediate and investment goods sectors. However, this pace of expansion is less than in recent months. In fact, it is the lowest in just over a year.

Growth in output volumes was underpinned by a rise in incoming new orders during July, with companies attributing the increase in new work to new product lines, price promotions, stronger economic sentiment and rising demand from domestic and overseas clients.

New work has led to increased job creation, with broad-based gains in payroll numbers seen across all sectors, including SMEs and large-scale producers. Job creation has slowed, however, dropping to the lowest level in nine months in line with other industry declines.

David Noble, group chief executive officer at the Chartered Institute of Purchasing and Supply (CIPS), claims that some of the "fizz" has gone out of the sector.

This could cause problems in the long run and suppliers are trying to find ways to adapt to the slowdown in activity.

"With supplier delivery times growing faster than at any time in the past three years, any further obstruction to supply chains could constrain growth even further in Q4," Mr Noble said.

The skills shortage will also affect the ability of the industry to grow. In the report 'An insight into modern manufacturing', Engineering the Future claimed that there is a lack of knowledge about the sector, which is causing a dearth of talent flowing into the industry.

Currently, the sector is predominantly made up of contractors with over 30-years of experience, who are likely to retire soon. The government needs to take action to ensure that when this happens there are skills in place to replace them.

Nevertheless, there are still positives to take out of the index, including increased exports to the Middle East, Africa and Asia. In fact, exports have recorded their 16th month of growth.

By Victoria McDonnell

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