Private sector activity falls again, led by fastest drop in manufacturing output since July 2012

CIPS 16 December 2019

Private sector employment decreased for the fourth consecutive month in December, which was often linked to subdued order books and delays to decision making in the lead up to the general election.

IHS Markit / CIPS Flash UK Composite PMI®

Including IHS Markit / CIPS Flash UK Manufacturing and Services PMI®

- Flash UK Composite Output Index Dec: 48.5, 41-month low (Nov final: 49.3)

- Flash UK Services Business Activity Index Dec: 49.0, 9-month low (Nov final: 49.3)

- Flash UK Manufacturing Output Index Dec: 45.8, 89-month low (Nov final: 49.1)

- Flash UK Manufacturing PMI Dec: 47.4, 4-month low (Nov final: 48.9)

The latest IHS Markit / CIPS Flash UK Composite PMI® data revealed a decline in private sector output for the second month running in December.

At 48.5, down from 49.3 in November, the seasonally adjusted IHS Markit / CIPS Flash UK Composite Output Index – which is based on approximately 85% of usual monthly replies – pointed to a modest reduction in overall business activity. Moreover, the rate of decline was the fastest recorded since July 2016.

December data pointed to lower volumes of service sector output and a much sharper drop in manufacturing production, with the latter falling to the greatest extent for almost sevenand-a-half years.

Survey respondents overwhelmingly attributed lower business activity to a combination of domestic political uncertainty, a lack of clarity in relation to Brexit and subdued global economic conditions. Manufacturers noted that efforts to trim their stocks of finished goods had acted as an additional brake on production at the end of 2019.

Private sector employment decreased for the fourth consecutive month in December, which was often linked to subdued order books and delays to decision making in the lead up to the general election. A sustained fall in new business intakes resulted in the sharpest reduction in backlogs of work since July 2016.

Meanwhile, input price inflation remained lower than seen in the first half of the year. Softer cost pressures and intense competition for new work contributed to the slowest rise in prices charged by private sector firms since April 2016.

IHS Markit / CIPS Flash UK Manufacturing PMI®

The seasonally adjusted IHS Markit/CIPS Flash UK Manufacturing Purchasing Managers’ Index® (PMI®) – a composite single-figure indicator of manufacturing performance – dropped to 47.4 in December, from 48.9 in November, to signal the sharpest downturn in overall business conditions since August.

Faster reductions in manufacturing output and new orders were the main factors weighing on the headline PMI in December. The latest fall in production volumes was the steepest since July 2012 and incoming new work has decreased in each month since May. Survey respondents often attributed subdued demand to weaker export sales and customer destocking in December, alongside delays to spending decisions ahead of the general election.

December data indicated a steep and accelerated fall in input buying across the manufacturing sector. The latest decline in purchasing activity was the fastest since April 2009, which was linked to fewer sales and planned inventory reduction. Both stocks of purchases and post-production inventories decreased in the latest survey period.

IHS Markit / CIPS Flash UK Services PMI®

Service sector output declined only slightly during December. At 49.0, down from 49.3 in November, the seasonally adjusted IHS Markit/CIPS Flash UK Services PMI® Business Activity Index remained below the 50.0 no-change level for the second month running.

The latest reading signalled only a marginal drop in business activity, but the rate of decline was the fastest since March. Moreover, new business volumes stabilised in December, which ended a three-month period of reduction.

There were signs that the improved trend for new work had been achieved through discounting strategies and a greater squeeze on margins. Reflecting this, average prices charged by service providers increased at the slowest rate since February 2016. In contrast, input cost inflation remained strong and picked up slightly since November.

Commenting on the latest survey results, Chris Williamson, Chief Business Economist at IHS Markit, said: “December’s PMI survey data sadly lacked festive cheer, indicating that the economy contracted for the third time in the past four months. The latest decline was the secondlargest recorded over the past decade, and increases the likelihood that the economy contracted slightly in the fourth quarter as Brexit-related uncertainty intensified in the lead up to the general election.

"New orders fell for a fifth straight month, causing jobs to be cut for a fourth successive month as firms scaled back operating capacity in line with weakened demand. "The principal drag on order books was falling export sales, with overseas demand for UK-produced goods and services slumping in the past two months to an extent not seen since at least 2014.

"Manufacturing production is falling at a rate exceeded only once since the height of the global financial crisis in early2009, but output of the vast service sector has now also fallen in each of the past two months, representing the first back-toback declines since 2009.

"Any positive aspects of the survey came largely from the sentiment indicators, with future expectations rising to the highest since June as firms hope that the election will bring clarity on the outlook and remove some of the uncertainty that has been holding back demand." 

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, said: “The continuing Brexit-related aversion to investment and a pre-election lack of consumer confidence led to the fastest fall in business activity in December since July 2016.

"European orders continued to dry up along with new jobs as the addition of a slowing global economy made trading conditions all the more challenging for both sectors.

"However the biggest shock came in the form of the worst output performance from the manufacturing sector since July 2012. A lack of new orders and the unravelling of pre-Brexit inventories hampered progress and supply chain managers’ purchasing dropped at the fastest pace since 2009 in the absence of a pipeline of work ready and waiting. Service companies had challenges of their own in the form of another modest rise in costs for food and fuel.

"Any vestiges of hope are now pinned on the election results as the potential for reducing uncertainty may restore confidence in the months ahead. But the Brexit path is still littered with obstacles and the need for strong negotiation skills for a future EU agreement will be paramount to avoid this downward slide becoming the economic landscape for an extended period."

Trudy Salandiak

Corporate Communications


T: +44-1780-761-576

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