Britain’s factories report rise in production for March

Britain’s factories increased production unexpectedly last month despite the sector experiencing its weakest quarter in a year, with signs the growth spurt enjoyed towards the end of 2017 has fizzled out.

Shaking off concerns that heavy snowfall from the “beast from the east” would trigger a slowdown, the UK manufacturing sector maintained a steady pace of growth in March.

The Markit/Cips UK manufacturing PMI barometer of factory sentiment showed activity jumped to 55.1 from 55 in February, beating economists’ forecasts for a fall in the growth rate. A figure above 50 indicates expansion on the index, which is used by the Bank of England to monitor the health of the economy.

The latest PMI figures show manufacturing production rose for the 20th successive month, as companies continued to report solid inflows of new work from both domestic and overseas markets.

But the performance completes a relatively weak quarter for the industry after a mini-boom at the end of last year. Rob Dobson, a director at IHS Markit, said the latest reading suggested overall production growth would fall by more than half in the first quarter compared with the final three months of 2017.

Manufacturing output growth had remained steadily above 1% towards the end of last year but may have fallen to about 0.5%, according to economists.

“The key question is whether growth can now be sustained, albeit at a lower level, into the coming months,” Dobson said.

There are already some positive signs, with the survey of manufacturers used for compiling the PMI figures showing almost 55% of companies forecast that output will be higher in 12 months’ time.

The rate of growth also remains fairly strong by past standards, which experts said should help the economy to overcome weak high street spending in the first few months of 2018.

Q&A

What is productivity and why does it matter?

Productivity is an economic measure of the efficiency of a workforce. It typically measures the level of output per hour of work, or per worker.

A more productive workforce signals stronger growth and healthier public finances. Productivity gains are vital to economic prosperity because it signals that more is being achieved by workers in less time. Gains are typically achieved through advances in technology and increased skill levels within a workforce.

In the UK, productivity growth has stalled since the financial crisis, putting it behind international rivals. The UK ranks fifth out of G7 leading industrial nations, with Canada and Japan having weaker levels of productivity. Germany is the most productive nation per hour, while the US is top for output per worker.

Weak productivity is problematic because it signals weaker economic growth, therefore eroding the public finances. Without an improvement in productivity, economies miss out on increases in wages and living standards, putting further pressure on the welfare system and depressing tax receipts.

Some industries are more productive than others. In the UK, manufacturing firms are among the most efficient, whereas the services sector operate at below average productivity.

Photograph: Bloomberg

Was this helpful?

Thank you for your feedback.

Ruth Gregory, an economist at the consultancy Capital Economics, said factories were still being supported by the pound’s weakness since the Brexit vote, which has boosted demand from overseas markets. Sterling remains about 5% below its level before the EU referendum.