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U.K. August manufacturing output grows at fastest rate since May 2014, PMI index rises to 55.2

U.K. manufacturing output grew at the most rapid pace for over six years in August, as firms and their clients restarted operations after coronavirus disease 2019 lockdowns. The seasonally adjusted IHS Markit PMI index rose to a 30-month high of 55.2 in August from July’s 53.3. Manufacturing production rose at the most rapid pace since May 2014, reflecting strong growth throughout the consumer, intermediate and investment goods sub-sectors. The steepest growth was recorded in the intermediate goods category, whereas investment goods producers recorded the lowest rate of growth.

New orders rose at the fastest rate since November 2017, supporting the headline figure. The domestic market continued to be the prime source of new contract wins, although new export orders rose moderately for the first time in 10 months. Manufacturers mentioned rebounded demand from the EMEA region, North America and Australia. The main factors driving production and new orders higher have been the re-opening of manufacturers and their clients following lockdowns and a loosening of other restrictions in place to combat COVID-19. This has not underpinned a similar recovery or stabilization in demand for staff, however, with job losses recorded for the seventh straight month.

Employment in the manufacturing sector fell at one of the steepest rates in the past 11 years, with reductions seen throughout the consumer, intermediate and investment good industries. Small, medium and large-sized companies also implemented similarly marked cuts to staff headcounts. Stocks of purchases and finished goods both dropped further. Input inventories dropped in spite of a modest rise in purchasing activity. Input price inflation accelerated to a 20-month high in August.

Rising costs were attributed to limited availability for certain inputs and supply-chain disruption caused by COVID-19. Exchange rates and increased freight costs were also mentioned. Part of the rise was passed on to clients, with selling prices rising at the fastest rate since March. Supply-chain disruption resulted in a further lengthening of vendor delivery times.

Business confidence about future output prospects remained positive in August, remaining close to July’s 28-month high. Firms attributed their expectations of output growth to hopes of a move back to more normal operating conditions over time, the launch of new products and the ongoing reopening of the domestic and global economies.

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