Manufacturing hit by weakest production in seven years

1 August 2019

UK manufacturing output hit its lowest in seven years due to ongoing political uncertainty, low levels of stockpiled materials, and global trade tensions, according to the latest PMI. 

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index remained in contraction at 48, unchanged from June, and the third month running that it’s stayed below the neutral 50 mark.

Manufacturers reduced output due to a decrease in new orders resulting from Brexit uncertainty and weak demand from domestic and overseas markets, mainly the EU and China. It was also mentioned that clients were rerouting supply chains out of the UK in preparation for Brexit. 

There was little change in input stock levels in July, with some firms still running down stocks built up prior to the original March Brexit date, while others were restocking in preparation for the new October deadline. High levels of inventory due to Brexit stockpiling contributed to clients requesting delayed delivery times, and manufacturers retaining stock for longer.

Firms reduced buying volumes for a third consecutive month due to lost contracts, improved stock management processes and efforts to save cash. 

Rates of increase in input costs and selling prices were the weakest for over three years. Suppliers’ delivery times increased for the first time in three months. 

The downturn in the sector impacted employment rates, with reductions in employment continuing for the fourth month in a row. This included recruitment freezes, employees leaving, and budget controls leading to job cuts.

Rob Dobson, director at IHS Markit, said: “The weak, highly competitive environment makes a sustained revival highly unlikely in the coming months. However, a short-lived bounce leading up to October should not be ruled out, as some manufacturers are already gearing up to restart Brexit preparations. If so, expect a case of déjà-vu during quarter four, as another correction in inventory holdings hits growth in the lead-up to year end. 

“On a more positive note, there may still be brighter times over the horizon. Over two-fifths of companies expect to see higher output a year from now, assuming political uncertainties and global trade tensions ease as expected.”

Duncan Brock, group director at CIPS, said: “A killer combination of economic uncertainty and the weakest production levels for seven years battered the manufacturing sector into contraction for the third consecutive month in July.

“The softening in cost inflation to a three-year low was a small gift as some businesses planned to tie up more funds in goods, materials and premium warehousing space in a potential second round of stockpiling in readiness for October.”

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