CIPS News


Downturn in UK manufacturing continues as rate of job losses accelerates

CIPS 1 October 2019

Business optimism remained at a subdued level in September, despite improving from the series-record low registered in the prior survey month.

IHS MARKIT / CIPS UK MANUFACTURING PMI®

- UK Manufacturing PMI at 48.3 in September (4-month high)

- New orders, output and employment fall further

- Purchasing and input stocks rise as Brexit preparations restart

The downturn in the UK manufacturing sector continued in September. Although the contraction was shallower than the prior survey month, levels of output, new orders, new export business and employment nonetheless fell further. Stocks of purchases and input buying volumes also rose for the first time in recent months, as some companies restarted their Brexit preparations.

The headline seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) rose slightly to 48.3 in September, up from August's six-and-a-half year low of 47.4. The headline index has now remained below the neutral 50.0 mark for five successive months, its longest sequence below that mark since mid-2009.

Manufacturing production continued to contract in September, as companies cut back output in response to a further reduction in new order intakes. The investment goods sector was by far the weakest performer, seeing the steepest drops in both output and new business. This reflected, at least in part, a reluctance among clients to commit to capital expenditure due to ongoing market uncertainties (economic, political and Brexit related).

The consumer goods sector was the only category to see output rise in September, as production in the intermediate goods industry stagnated. The outlook for both sectors remained lacklustre however, as intakes of new work decreased in both during September.

Companies reported lower inflows of new work from the domestic and overseas markets, with the trend in the former especially weak. Although the rate of decline in new export business was much slower than in August, reports that Brexit uncertainty and clients routing supply chains away from the UK still impacted on foreign demand.

The ongoing weakness exhibited by manufacturing filtered through to the labour market, with staffing levels reduced at the fastest pace since February 2013. Companies reported that capacity had been reduced due to lower demand, efforts to control costs, redundancies and natural wastage. Job losses were widespread across the sector, with declines seen across the consumer, intermediate and investment goods industries and at SMEs and large-sized producers.

September saw increased levels of input buying among manufacturers. A number of firms reported that purchasing had been raised as part of restarting Brexit preparations. This was also reflected in the trend in pre-production stocks, which rose for the first time in five months. Inflationary pressures remained relatively contained, as rates of increase in input costs and selling prices both eased.

Business optimism remained at a subdued level in September, despite improving from the series-record low registered in the prior survey month. Companies reported that ongoing uncertainties made forecasting future trends increasingly difficult.

Rob Dobson, Director at IHS Markit, which compiles the survey: “The UK manufacturing downturn continued in September, adding to signs that the sector may be sliding into recession. Output, new orders and employment all fell further as rising political, trade and economic uncertainties exacerbated concerns about Brexit. “Some manufacturers noted increased inventory building activity in preparation for the forthcoming exit date, but the impact of such Brexit-related stock building was dwarfed by weakening demand for other customers, due in part to clients routing supply chains away from the UK.

“The rate of job losses accelerated to a six-and-ahalf-year high, highlighting how manufacturers are increasingly seeking to cut costs. Similarly, the investment goods sector was especially hard hit in September, seeing the sharpest drops in production and new business, as clients reined in capital spending while conditions remained volatile.

“The shroud of uncertainty also weighed on manufacturers' confidence, which remained at one of its lowest ebbs in the survey history. These headwinds all ensure that manufacturing will likely remain a drag on UK economic growth during the months ahead.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply: “Businesses were less hopeful about the strength of the marketplace in generating manufacturing growth in the coming months as new orders continued to fall away, and business optimism remained at lower than average levels in all three sub-sectors. Export orders dwindled for the sixth successive month, and domestically, clients avoided spending and investing in this current landscape of prolonged uncertainty and political indecision.

“As the Brexit October deadline came into view, the sector offered two opposing strategies to prepare for the UK’s departure. Where some companies were burning through their levels of materials, others began building stocks up again, fearful of an imminent and abrupt rupture in their supply chains. European clients became more resigned and made concrete plans to move away from UK suppliers and business closer to home seemed more reliable.

“This exhausting set of conditions meant companies shed jobs at a rate not seen since 2013 as redundancy packages were prepared and new staffing plans abandoned. Brexit combined with a slowdown in the global economy, rising trade tensions and potential oil supply difficulties in the Middle East, means we’re likely to see a chilling end to the last quarter as Halloween approaches.”

CIPS

Trudy Salandiak

Corporate Communications

T: +44-1780-761576

trudy.salandiak@cips.org

Page Loading
Page Loading
Page Loading
Page Loading

Searching...

This may take up to 30 seconds