Manufacturing output sees record rate of contraction in survey history

1 September 2023

The UK manufacturing sector sank into a deeper downturn in August, as a backdrop of economic weakness, high interest rates and the cost of living hit demand.

The S&P Global / CIPS UK Manufacturing Purchasing Managers’ Index posted 43.0 last month, down from 45.3 in July, and below the neutral 50.0 mark. This is its lowest level since May 2020, signalling a “steep deterioration in operating conditions”.

Rates of contraction in output and new orders were among the steepest ever registered, outside of events such as the global financial crisis or the pandemic. Production volumes also decreased for the sixth month in a row, and new order intakes were hit by “deteriorating market conditions”, decreasing at an accelerated pace.

Companies described slowing market conditions, declining new order intakes, and efforts to streamline inventories of finished goods underlying the latest contraction. 

Consumer, investment and intermediate goods all saw downturns, with the latter being the weakest sub-industry overall, registering the fastest rates of decline for output, new orders, new export business, input purchasing, and employment.

The current downturn also affected trends in raw materials purchasing, stock holdings and supplier delivery times. Input buying volumes fell for the 14th month running and at the sharpest rate in almost three-and-a-half years. 

Meanwhile, stocks of both inputs and finished products were depleted, as companies strived to cut costs, protect margins and run more efficient and leaner operations.

However, average vendor lead times shortened for the seventh straight month. Though this was driven by weak demand for raw materials and reduced workloads for both manufacturers and suppliers.

Weak demand meant many inputs were down in price, including energy, fuels, oil by-products, metals, polymers and rubber.

Staffing levels were cut for the 11th consecutive month, thanks to reduced intakes of new work, falling output volumes, and cost control efforts. Some firms cited excess capacity, as backlogs of work contracted to the greatest extent since April 2020.

And yet manufacturers maintained a positive outlook despite the current economic “malaise”. Optimism hit a four-month high, with 56% of firms expecting growth over the coming year. This was linked to hopes for a market revival, new product launches and acquisition / diversification plans.

CIPS chief economist, John Glen, said: "The constant pressures on business costs from inflation and the systemic weaknesses in the UK and global economies were also driving the fastest fall in new orders since the financial crisis, outside the pandemic years. As a result, manufacturers were forced to reduce the size of their business operations, their headcounts and reassess what business is likely to look like in the remainder of the year and in a highly competitive economic environment. 

"Some price correction eased the pain for manufacturers who registered a four-month high in optimism about opportunities in the next 12 months. Small crumbs of comfort maybe, as the sector remains in contraction and the marketplace cools even further, leading to headaches for policy makers about what steps to take to keep the economy from sliding into recession.”

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