Manufacturing index at seven-year low

30 June 2008
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01 July 2008 | Rebecca Ellinor

Activity in the manufacturing sector was at its lowest level since 2001 last month and saw jobs "culled" to offset rises in raw material costs.

The June CIPS/Markit Purchasing Managers' Index report recorded a reading of 45.8 (where a figure below 50 represents a reduction in activity). This is a drop on May's almost stagnant figure of 49.5 and is a level of contraction not seen since the immediate post-9/11 period.

UK manufacturers faced weak demand from the domestic market coupled with huge cost inflation, which resulted in output charges hitting a series of record highs.

Companies scaled back production as domestic orders fell, with the new orders index posted a reading of 43.2. As a result, the volume of uncompleted work reduced at the fastest rate in the survey's history. The backlogs of work index recorded a reading of 39.9.

The input prices index came in at 82.1, with manufacturers reporting higher prices for chemicals, food products, packaging, plastics and timber. Reports also said the weakness of the sterling against the euro was pushing up the cost of raw materials imported from the continent.

And there was no good news from demand abroad as the new export orders index dropped from 51.1 in May to 47.4 in June.

There were reports of redundancies and recruitment freezes with leavers not being replaced in an attempt to offset price pressures. This cut in manufacturing jobs saw the employment index post a reading of 46.5.

Roy Ayliffe, CIPS director of professional practice, summarised: "Faced with a relentless onslaught of ever weaker domestic demand, slower global economic growth and record cost inflationary pressure, manufacturers scaled back production, which contracted at the most severe levels in nearly a decade. There was no good news for the sector's labour market either, as the decline in order books led to a continued culling of jobs." * Further coverage of PMI reports is available at http://www.supplymanagement.com/pmi



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