Factory output drops to seven-year low

2 September 2019

UK manufacturing output volumes slid to a seven-year low in August, according to the latest PMI.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index slumped to 47.4, its lowest level since July 2012 and down from 48.0 in July. 

New work has dropped at its fastest rate in over seven years. The downturn in the UK manufacturing sector is a result of economic and political uncertainty across the UK and global markets, with business optimism also falling to a record low. 

The consumer, intermediate and investment goods industries experienced reduced orders due to weak economic conditions, low market confidence, Brexit concerns, uncertainty and a decrease in spending. 

This also resulted in a slump in business optimism, hitting its lowest since July 2012. However, manufacturers expect a pick up in output growth, with 40% forecasting an increase compared to 13% predicting decline over the next 12 months. 

Ongoing global trade tensions, slow economic growth and Brexit uncertainty have caused levels of export business to drop at the fastest rate in over seven years. Some EU-based clients were reported to reroute supply chains away from the UK, and intake of work from the US and Asia regions also reduced. 

The exchange rate was mentioned by over 80% of managers as one reason for increased purchasing prices. This led to cost increases passing down the supply chain and a rise in selling prices. The strongest rise in price measures was seen in the intermediate goods sector. 

Employment also fell at a record rate in the sector due to job cuts.

Duncan Brock, group director at CIPS, said: “The sector’s illness took a turn for the worse in August with the sharpest decline in domestic and export orders for seven years. Investment continued to peter out and heightened concerns about the UK’s political situation and the strength of the global economy acted as a drag on activity.

“As some clients from the eurozone continued to move their supply chains away from the UK, declining orders from the US and Asia dashed any hopes of redemption, resulting in the sharpest fall in business optimism since at least 2012.

“As Brexit planning intensifies, some firms were resorting to more inventory building whilst others were unravelling their stocks. With some supplies impacted by port delays and poor supplier performance, a creeping dread is descending on the sector that there will be more of these obstacles to come,” he added.

Rob Dobson, director at IHS Markit, said: “The current high degree of market uncertainty, both at home and abroad, and currency volatility will need to reduce significantly if UK manufacturing is to make any positive strides towards recovery in the coming months.”

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