The latest data indicated that the sector maintained its robust start to the third quarter of 2013. After the solid increases in output and new orders registered in July, August saw the momentum continue to build, the index suggested, with growth rates for both variables at their highest since 1994.
However, cost inflationary pressures surged higher on the back of rising raw material prices. The Index hit a two-and-a-half year high of 57.2 in August, up from 54.8 in July and has now signalled expansion for five successive months. Manufacturing output increased at the fastest pace since July 1994, with marked expansions signalled across the consumer, intermediate and investment goods sectors.
New orders rose for the sixth month running and to the greatest degree since August 1994. The domestic market was the main source of new contracts, although there was also a solid increase in overseas demand from the USA, China, mainland Europe, India, Scandinavia, Brazil and Ireland.
The main negative finding from the latest survey was a marked upsurge in cost inflationary pressures at manufacturers. Average input prices rose at the fastest rate for two years and at an above survey average pace. The month-on-month upward movement in the Input Prices Index (10.4 points) was the second-steepest in the survey history. Companies reported higher prices paid for commodities, feedstock, oil, paper, polymers and timber. Average selling prices also increased, but to a much lesser degree than registered for costs.
Rob Dobson, Senior Economist at survey compilers Markit said manufacturing was making a strong positive contribution to the economy, providing welcome evidence that the long-awaited rebalancing of the economy towards manufacturing and exports was at last starting to take place now that export markets were recovering. but he added, “While the latest PMI suggests that the output side is increasingly positive, the news on the other fronts is much less so. Employee numbers crept up only slightly, as companies squeezed extra output from existing resources. At the same time, the rate of input cost inflation surged upwards on the back of rising oil and related prices.”
EEF chief economist Lee Hopley said the conditions were right for manufacturers to see continued expansion in the remainder of this year with growth accelerating in 2014.