UK manufacturing slows as costs rise

UK manufacturing growth came under pressure in March and output prices rose to a record high, according to a new report.

Manufacturing activity fell to 57.1 on the Markit/CIPS purchasing managers index, down from a record high of 60.2 in February, as growth slowed to a five-month low.

A combination of weak consumer confidence, surging prices of raw materials and supply chain disruption caused the slowdown, although the index remains above the long-run average.

“The mini-boom in UK manufacturing ran out of steam during March,” said David Noble, chief executive at the Chartered Institute of Purchasing & Supply.

Manufacturing companies’ orders slowed to the lowest level since last October, largely thanks to a fall in domestic demand for consumer goods.

But the costs of raw materials and energy rose sharply, which companies passed onto consumers in higher prices for the finished goods, leading to the fastest rate of price rises since Markit started collecting charges data in November 1999.

Markit Senior Economist Rob Dobson said “persistent high oil prices due to the unrest in the Middle East and North Africa, rising global prices for many other raw materials and higher import prices due to the weak pound,” were behind the rise.

Prices for fuel, metals, oil and timber all went up, and companies reported shortages for a number of the raw materials, pushing average input costs up for the nineteenth month running in March.

However, employment in the manufacturing sector rose at the second-fastest pace in the history of the survey.

“The survey fuels the suspicion that manufacturers will find life increasingly challenging over the coming months as stock rebuilding wanes and tighter fiscal policy weighs down on domestic demand,” said Howard Archer, chief UK and European economist, IHS Global Insight.