UK manufacturing declines for fifth straight month

1 October 2012

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1 October 2012 | Adam Leach

Activity in the UK manufacturing sector continued to contract last month, with companies forced to reduce headcount amid a backdrop of increasing costs.

The Markit/CIPS UK Manufacturing PMI for September reported a figure of 48.4, weaker than the 49.6 index in August (a figure below 50 indicates a decline in activity). September’s index extends the run of declining activity to five months.

The report provided little cause for optimism with employment, input costs and output in each sub sector declining and only marginal growth in the number of new orders. Export orders declined for the sixth straight month, with weak demand from Europe and Asia. However, there was an increase in orders from the US and the Middle East.

There was particular concern over costs as high oil, food and commodity prices drove average purchasing prices up to a six-month peak. While manufacturers were able to offset some of this extra cost by increasing prices, weak demand restricted the degree to which this could be employed, increasing pressure on margins. Delivery lead times across the sector continued to drop, suggesting spare capacity at manufacturing plants.

David Noble, CEO at CIPS, said: “Fragile continues to be the watchword for the UK’s manufacturing industry as production edged slightly lower in September than the month before. It may seem incredible that the current subdued situation and outlook could be viewed as positives, but when you consider where the industry has come over the past couple of years the situation is at least broadly stable.”

Chris Williamson, chief economist at Markit, said: “A bright spot in the survey was an uplift in growth of new orders to the highest since March, which is attributable to demand perking up. However, while an improving trend in new order inflows bodes well for production in the coming months, the increase was only very modest due to falling exports.”

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