Only consumer goods showed a slight increase in orders © David Holt
Only consumer goods showed a slight increase in orders © David Holt

Post Brexit PMI reflects uncertainty

1 August 2016

The Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) fell to its lowest level since early 2013, reflecting pre and post referendum uncertainty, and despite weaker sterling rates strengthening exports.

Falls in output and new orders in July were harsher than expected, commented CIPS CEO David Noble, but not as marked as those seen during the recession of 2007-2008. “Purchasing prices rose at levels not seen for half a decade, with SMEs bearing the brunt of rising input prices while larger corporates were more able to cope,” he said.

The PMI fell from 52.4 in June to 48.2 in July in the wake of the Brexit referendum, the sharpest drop overall since 2013, and lower than the 49.1 anticipated in the mid-July flash poll.

Production saw its steepest fall since October 2012, with a contraction in the consumer, intermediate and investment goods sectors. The intermediate goods sector experienced the sharpest drop in output and new orders.

New orders for investment goods manufacturers saw only a moderate decrease during July, which could be partly accounted for by a marked increase in new work in June.

There was a slight increase in new orders for consumer goods, although at a substantially slower rate than the previous month.

Manufacturing employment showed a fall in July, the seventh consecutive month and at the second sharpest rate in nearly three-and-a-half years, following contractions in output and new orders. Employers also blamed the drop on natural wastage, restructuring, redundancies and outsourcing while weaker inflows of new work and declining volumes of outstanding business indicate employment may fall further in coming months.

Meanwhile the level of incoming new export orders in the UK manufacturing sector rose for the second successive month in July, aided by the recent depreciation of sterling and efforts by companies to secure new contracts. The increase was seen by the intermediate and investment goods producers, while the consumer goods sector's export business fell.
Purchase price inflation surged to a five-year high in July as a lower sterling led to higher import costs and higher metal and commodity prices.

“Although export orders rose for the second month in response to the weaker pound, this was not enough to sustain the sector or make up any shortfall from the sluggish domestic market,” said Noble.

The fall in employment showed businesses had chosen “redundancy and restructuring to secure themselves against more possible bad news ahead”, he added. “Without new orders coming through, this downward trajectory is likely to get worse, at least in the short term.”

PMI reports are based on monthly surveys of selected companies, tracking  output, new orders, stock levels, employment and prices across the manufacturing, construction, retail and service sectors.

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