The latest CIPS UK Manufacturing Purchasing Managers’ Index (PMI) has announced that the PMI recovered sharply to 53.3 from the 41-month low posted in July following the EU referendum. The month on month increase in the level of headline PMI was the joint highest since records began.
This increase has been driven by an increase in new orders in the sector and the weakening price of Sterling currency driving up exports and import costs.
Commenting on the findings, Mike Thornton, Head of Manufacturing at RSM, said:
‘The headlines suggest that this is positive news for the UK manufacturing sector, and is in many ways surprising following last month’s record low. On the face of it, the figures go against any views representing a negative watershed for UK manufacturers regarding Brexit. However, it could be that the sector has taken a measured approach to any changes and is adapting to the consequences.
‘Following the Brexit decision, the 10 per cent deterioration in the value of Sterling against both the dollar and euro was probably foreseen by many in the sector with regards to the positive effects this would have on exports and this supports today’s figures.
‘The cautionary note is the potential inflationary effect that the currency movements will have on imported raw materials. This could impact on margins, particularly where manufacturers are unable to mitigate this through price rises. The second impact is on working capital cycles – increased order levels may result in the need to build stock and also higher import prices will be reflected in higher purchase ledger balances. Understanding your working capital cycle is always important, but getting it right in times of sales growth and input inflation is critical to protect margins.’