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UK CommentManufacturing sentiment slides further in January as price pressures intensify

  1. New orders and output weigh on sentiment
  2. Input prices rising at the fastest rate in 11 months
  3. Based on past form, sentiment suggests slower output growth in the near term
PMI Manufacturing index down to 55.3 in January from 56.2 in December (consensus: 56.5)
The UK Manufacturing PMI fell to 55.3 in January from 56.2 in December (revised from 56.3) and missed the consensus expectation of a small increase to 56.5. Sentiment was burdened by new orders and output, as output growth eased to a six-month low, according to the survey. The growth in new orders was the slowest in seven months. New orders were pulled down by domestic orders, while export orders improved slightly. The order intake was somewhat stronger in investment goods than in consumer and intermediate goods. However, despite the weakness in new orders and output, expectations of future output improved in January and are currently back where they were in 2015 and are higher than the historical average. The employment index improved in December, but it is still lower than it was in October and November. Price pressures picked up markedly in January, according to the survey, with purchase prices rising at the fastest rate in 11 months. Increased demand for inputs reportedly led to improved supplier pricing power and shortages of raw materials, thereby resulting in a marked acceleration in input cost inflation. Part of the increase in costs was passed along to clients in the form of higher selling prices, and January saw the steepest increase in output charges since April of last year.
Sentiment suggests slower output growth
Manufacturing sentiment peaked in November last year and has since fallen back. Based on past form, we find that the PMI output index suggests that growth in manufacturing output could weaken in the near term. Actual manufacturing output growth reached an annual rate of 4.7 percent in October, but fell to 3.5 percent in November, which is still strong. The PMI output index suggests the annual output growth rate could decelerate further to around 2 percent, we believe.




Kari Due-Andresen

Chief Economist Norway

Norway and UK

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