Investec’s latest Manufacturing PMI report shows a slight improvement in business conditions, with the index improving to 51.7 in August from July’s 50.2 (50.0 is the no change mark). However, manufacturers remain cautious about the immediate outlook, which is unsurprising given the more unsettled international backdrop.

Production stabilised following a fall in July and firms continued to take on extra staff. The rate of cost inflation accelerated from the previous month, while output charges were raised for the third month running. But new export orders decreased for the second successive month due a drop in new work orders from UK clients.

Philip O’Sullivan of Investec commented: “Despite the uptick in new orders, the Backlogs of Work index fell for an eighth successive month and at the fastest pace since June 2013. This is likely explained by ongoing growth in headcounts - the employment index has been in positive territory for 39 successive months.”

O’Sullivan said the index showed that firms were trading off diminished stocks of finished goods against taking on new staff in order to contain costs somewhat.

He added: “On the margin side, the rate of cost inflation quickened markedly during August, with higher commodity and food prices blamed for this. Manufacturers were able to pass on at least some of this to end-customers, as they achieved a third successive monthly increase in output prices.”

In Association with

Purchasing activity fell markedly for the second month running, with some panellists highlighting negative expectations regarding production. Firms also made efforts to reduce inventories of purchases which decreased for the fourth consecutive month.

A further lengthening in suppliers’ delivery times was recorded in August, with the rate of deterioration in vendor performance slightly greater than seen in July.