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1) Manufacturing PMI falls…but remains healthy

The manufacturing PMI dropped to a six month low in January, down from 56.2 to 55.3. While this does represent the second consecutive month of cooling from November’s four year high, the indicator remains well above both the 50-no change mark and long run average of 51.7.


Indeed activity across the sector remains robust. Output and orders continued to rise at a solid pace on the back of the strong global economy, although the rate of expansion was its slowest for six and seven months respectively.

Top line from today’s data: Manufacturing activity is still growing at a healthy notch, just not at the same pace compared to the back end of 2017. All is well.


2) Investment goods continue to benefit

Looking at the sector data reveal solid increases in output and new orders across the consumer, intermediate and investment goods sectors. But it is the investment goods sector which continues to expand at the greatest rate, as the revival in capital good markets continues into 2018, on the back of the global economy upswing. Sound familiar? Read more in our latest Manufacturing Outlook.


3) Exports remain in a sweet spot

January once again saw a strengthening in new export orders. In fact while the rate of expansion in output and orders has slowed in the domestic market, foreign demand continues to impress, expanding at one of the quickest rates over the past four years. There appears to be no ill effects yet from Sterling’s recent rallies, and instead the sector continues to benefit from healthy global demand conditions, with increased sales to clients in North America, China, Europe, the Middle East and Japan all reported.

The fact that strong export demand is primarily a global economy story, and not a sterling depreciation story, is reflected in the healthy PMIs recorded across the continent. It’s not just UK manufacturing having a good time therefore, the global manufacturing industry is on the up too.


4) Re-emerging price pressures

One concern from today’s release will be the return in price pressures. Previous releases had suggested that price pressures were beginning to cool in the sector, but January saw input prices surge to an 11 month high. According to the survey the increase in production costs came on the back of an increase in prices across a wide range of raw materials and commodities including chemicals, food products, metals and perhaps most notably oil.

Worryingly for consumers part of the increase in costs were passed on to clients in the form of higher output prices. January saw the steepest increase in output charges since April of last year. Whether these price increases are a one off, or a more sustained dynamic will be something we will be keeping a close eye on over the coming releases.


5) Overall the sector is in good health

Despite the PMI falling, and the sector to some extent stumbling into 2018, today’s release makes for good reading. Continued growth in output and orders, strong job creation, and optimism rising to its highest level for 2 years, all suggest that manufacturing should continue to contribute positively to overall growth in the coming quarters.