BRITISH factories enjoyed a brighter start to the year than expected, helped by surging output at large manufacturers, but companies cut staff at the fastest rate in three years and export orders fell, a survey showed today.
The Markit/CIPS manufacturing purchasing managers’ index rose to a three-month high of 52.9 in January from 52.1 in December, beating all the forecasts in a poll of economists, who expected a reading of 51.8.
Manufacturing failed to contribute to Britain’s economic growth throughout 2015, which was driven instead by the much larger services sector.
The latest PMI showed factories ramped up output at the quickest pace since June 2014, led by consumer and investment goods producers.
Survey compiler Markit said they were led by big manufacturers, with growth “comparatively mild” at smaller companies.
But behind the upbeat headline number were some gloomier details. Manufacturers shed staff at a rate not seen since February 2013.
Export order books deteriorated at the fastest rate since June last year, even though sterling dropped about 3 per cent on a trade-weighted basis last month.
Rob Dobson, senior economist at Markit, said: “The domestic market remains the key growth driver. In contrast, the trend in new export orders continues to disappoint, falling back into reverse gear in January.
“Even after recent easing in the exchange rate, a number of manufacturers are still finding that the strength of the pound against the euro is impacting order inflows.
“Reports from companies also highlight how the general operating environment has become increasingly competitive both at home and abroad as firms scramble to win new customers.
“Strong competition on the sales side combined with the ongoing weakness of global commodity prices meant that manufacturers saw selling prices and input costs fall further in January.
“Subdued growth, rising global headwinds and a lack of inflationary pressure provide further cause for the Bank of England to push its first rate increase into the back and beyond of 2016.”
The survey has remained above the neutral 50.0 market for 34 months in a row, which is a sign that prospects for the UK economy have improved.
Commenting on the index, David Noble, the group chief executive at the Chartered Institute of Procurement & Supply, said: “The domestic market continued to buoy up manufacturing growth as the year starts in a positive, if slightly reserved fashion.
“Though the PMI survey has generally signalled growth of production and new orders through much of the past three years, January also saw respondents cite increased competition, challenging exchange rates and a more difficult marketplace as factors making it increasingly difficult to win new contracts and protect margins hard won in recent months.
“Purchasers were reducing stock levels and moving towards leaner purchasing practices to increase cashflow. Staffing levels fell, albeit slightly to try and control costs – all designed to gear up for the year ahead.
“The increase in demand for inputs also exerted greater pressure on supply chains, leading to longer vendor delivery times and rising reports of raw material shortages.”