Manufacturing loses momentum in March, but sector's quarterly performance remains strong - EY ITEM Club comments

03 April 2017

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  • Manufacturing PMI dips in March
  • But this still delivers a strong performance for the quarter
  • Inflation remains very apparent, but pressures may be easing

Martin Beck, senior economic advisor to the EY ITEM Club, comments:

“Since the manufacturing PMI reached a two-and-a-half-year high last December, the story has been one of a gentle decline in the Index. March continued that trend, with the PMI running at a four-month low of 54.2 compared to February’s 54.5. The survey suggested that the slowdown was mainly related to consumer goods production, while intermediate and investment goods output accelerated.

“March’s result was still above the survey’s long-run average of 51.6. And while consistent with little growth in the official measure of output, the PMI has tended to paint an overly pessimistic picture in recent months. Moreover, manufacturers’ performance in Q1 in aggregate was an upbeat one. An average PMI of 54.7 was in line with that seen in Q4 2016, matching the highest level since the middle of 2014.

“Looking forward, the sector’s prospects will represent the outcome of a battle between the activity-depressing effect of higher inflation versus the positive boost from the weak pound and a better global outlook. Here, the CIPS survey offered some cause for hope. Foreign demand increased further in March. And while input costs continued to rise rapidly, the survey’s measure was the weakest since last September. But even if this does presage a weakening in inflationary pressure, it will be some time before consumers see any relief.”