UK manufacturing falls at fastest rate since 2020 lockdowns
Britain’s manufacturing sector continued to contract last month, with new orders contracting at the fastest pace since May 2020.
According to S&P Global’s Manufacturing Buyers Index (PMI), a sharp decline in new work received, weak export demand and supply chain disruption led to reduced production and employment.
The index stood at 46.2 in October, down from 48.4 the previous month – a 29-month low. Any reading below 50 indicates a decrease in activity.
Although higher than the previous flash estimate of 45.8, the PMI has now remained below the neutral 50 mark for three consecutive months.
Sales from overseas customers were lackluster over the period, with new export business falling for the ninth consecutive month. This was due to the weakening global economic situation, slowing Chinese demand, the war in Ukraine and ongoing Brexit issues which are stifling export performance.
The consumer, intermediate and capital goods sectors all saw their output fall, with the performance of the intermediate goods sector being particularly weak.
But the lack of order intake led to a solid increase in inventories of finished products. Inventories rose for the sixth straight month, but at the slowest pace since June, S&P said.
The data also revealed that job losses were reported for the first time since December 2020, “reflecting layoffs, cost control initiatives and difficulties in both recruiting and retaining specific staff and skills” .
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The general darkening of the situation caused business optimism to fall to its lowest level in two and a half years, as weak demand, fears of recession, inflationary pressures and growing uncertainty rattled the trust.
John Glen, chief economist at the Chartered Institute of Procurement & Supply, said: ‘No wonder UK manufacturers are at their lowest point with the lowest optimism for the year ahead for two-and-a-half years as the burden of strikes potential railways affecting freight added to their pessimistic assessment.
“Manufacturing may not be the largest sector of the UK economy, but its importance is evident as supply disruptions continue overseas and more capacity is needed domestically to turning the wheels for customers and consumers.”
Some 43% of the survey panel expect production levels to be higher a year from now, supported by new product launches and a possible decrease in economic and political volatility.
Price inflation remained significant at the start of the fourth quarter, with input costs and production costs rising at rates above the survey average. However, the rates of increase for both price measures moderated slightly in October.
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Businesses have reported a wide range of items that have increased in price. These included chemicals, electronics, energy, food, metals, packaging, paper and wood. Transportation and administration costs have also increased.
There was talk of the war in Ukraine, general inflationary pressures and the exchange rate of the pound, all contributing to higher prices.
“There is evidence that the UK manufacturing sector is starting to contract, as consumer and business demand falls, while the impact of inflation is felt on operating costs,” said Simon Jonsson, UK Head of Industrial Products at KPMG.
“The volatility of the pound, a weakening order pipeline, as well as interest rate expectations, all paint a difficult picture for the manufacturing sector. Many companies are still experiencing supply shortages, which makes the problem worse.
“Without a strong pipeline of new work, parts of the manufacturing sector are pausing post-pandemic capacity building, and even worse, some companies are laying off staff to save on business costs. This is the first month of job losses in the manufacturing sector since the end of 2020.
“There is a strong manufacturing sector in the UK and manufacturers will be watching for the November 17 Autumn Statement as the government sets out its agenda to ensure the UK economy remains competitive.”
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