UK factories grow for an 11th month, but costs rise

Britain's manufacturers grew for the 11th month in a row in September, but rising fuel and transport costs have brought a renewed rise in price pressures, according to a closely watched survey.

The S&P Global UK Manufacturing Purchasing Managers' Index rose to 51.9 in September from 51.7 in August, in line with an earlier estimate. Any reading above 50 means the sector is growing.

Orders still rising

New orders increased for the 10th consecutive month, with growth coming from both domestic customers and export markets. Firms increased output in response, although the pace of growth in production eased slightly towards the end of the third quarter and was the weakest for six months.

Manufacturers remained positive about the future. Nearly half expected their output to increase over the coming year, citing planned expansions, new product launches and investment projects.

Prices rising again

The biggest change in September came in the survey's measures of prices. Having signalled easing inflationary pressures, they switched to a renewed rise. Firms reported higher purchase prices and transport costs, linked to the surge in diesel prices.

Supply chains also came under pressure, with delivery times lengthening. Geopolitical uncertainty, including the war involving Iran, weighed on confidence.

Why it matters

The PMI is based on a monthly survey of purchasing managers at hundreds of manufacturing companies. Because it is published soon after the end of each month, it is one of the first indicators of how the economy is doing and is watched closely by the Bank of England and financial markets.

Rising costs for manufacturers can feed through into higher prices in the shops, which is why the Bank of England pays close attention to the price measures in the survey.

Manufacturing in Birmingham

Manufacturing remains an important part of the economy in Birmingham and the surrounding area, especially in automotive, aerospace, rail, food and drink, and metals. The region's car industry has had a difficult year, with Jaguar Land Rover announcing thousands of job cuts in September, but many smaller firms have reported steady demand.

Earlier in September, a Midlands automotive supplier reported growing its turnover by 15 per cent after working with Aston University to connect its factory machines in real time, showing how productivity improvements can help firms grow without adding costs.

The wider economy

The survey for the services sector, which makes up most of the UK economy, is published separately. Business groups have warned that higher energy and fuel costs, along with uncertainty over tax changes in the Budget on 28 October, are making many companies cautious about investment and hiring.

Energy costs

Manufacturers have long complained that UK industrial electricity prices are among the highest in the developed world. Industry groups want the Government to do more to bring them down, arguing that high energy costs make it harder for British factories to compete with rivals overseas.

What happens next

Official figures for economic growth in the third quarter of the year will be published by the Office for National Statistics in November. The Bank of England will set interest rates on 5 November.

Skills shortages

Manufacturers also continue to report difficulty finding skilled workers, particularly engineers and technicians. Many firms in the region work with colleges and universities to train apprentices, and the Government has promised a new national apprenticeship service to help young people into work.