CIPS News


UK manufacturing contracts as political and economic uncertainty continues

CIPS 2 December 2019

Sector data indicated that the downturn at investment goods producers remained severe, with production, new orders, new export business and employment all contracting at steeper rates than the other sub-industries.

IHS MARKIT / CIPS UK MANUFACTURING PMI®

- UK Manufacturing PMI at 48.9 in November (Flash: 48.3)

- Output, new orders and employment all decline

- Stocks depleted and purchasing reduced following Brexit delay

The UK manufacturing downturn continued in November, as businesses responded to the delay to Brexit and a fresh injection of uncertainty from the forthcoming general election. Output, new orders and employment all fell, while destocking activity resumed as firms depleted buffers built-up in advance of the postponed exit date.

The headline seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) slipped to 48.9 in November, down 49.6 in October but above the earlier flash estimate of 48.3. The PMI has remained below the neutral mark of 50.0 for seven successive months.

November saw a reduction in manufacturing output, with the rate of decline accelerating slightly over the month. Companies reported scaling back production in response to lower new order intakes. Efforts to reverse high stock holdings also contributed to the contraction, as did settling backlogs of work directly from inventories (further reducing the need to maintain production volumes).

New orders fell for the seventh month in a row during November, reflecting tougher conditions in both domestic and overseas markets. Companies attributed this to destocking at clients following the delay to Brexit and the ongoing uncertainty surrounding the political, economic and global trade situations. The decline in new export orders was among the steepest registered over the past seven years.

November saw manufacturing employment fall for the eighth straight month, with the pace of job losses the steepest since September 2012. Companies linked further cuts to cost reduction efforts, efficiencies, Brexit uncertainty, redundancies, natural wastage and staff restructuring.

Sector data indicated that the downturn at investment goods producers remained severe, with production, new orders, new export business and employment all contracting at steeper rates than the other sub-industries. Output, new business and staffing levels at intermediate goods producers also fell. There were brighter signs from the consumer goods sector, which saw growth of both output and new orders.

The delay to Brexit had a noticeable impact on stock holdings and purchasing activity during November. Finished goods inventories fell at the steepest rate in over two-and-a-half years, while input buying volumes fell to one of the greatest extents since early-2013. These contractions were a marked reversal from the solid increases seen in the lead-up to the October 31st exit date.

November saw average selling prices increase for the fortythird month in a row. However, charge inflation remained relatively mild overall, with the rates over the past three months among the weakest during the current sequence of increase. Input costs decreased – albeit marginally – for the first time since March 2016, linked to lower global commodity prices and exchange rate effects.

Rob Dobson, Director at IHS Markit, which compiles the survey: “November saw UK manufacturers squeezed between a rock and hard place, as the uncertainty created by a further delay to Brexit was accompanied by growing paralysis ahead of the forthcoming general election. Downturns in output and new orders continued amid a renewed contraction in exports. The pace of job losses also hit a seven-year high as firms sought to reduce overheads in the face of falling sales. Destocking at manufacturers and their clients following the latest Brexit delay was a major contributor to the weakness experienced by the sector. Inflationary pressures meanwhile showed signs of moderating further, with input costs falling slightly for the first time since March 2016.

“Signs of a two-speed economy persisted, with intensifying business uncertainty leading to a further steep drop in demand for machinery and equipment as firms cut back on investment, but rising demand for consumer goods suggests that households continue to provide some support to the economy.

“Manufacturers across all sectors will be hoping that the New Year brings clarity on the political, trade and economic fronts, providing a more certain foundation to plan and rebuild as the next decade begins.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply: “A heavy sense of inevitability hung around the sector in November as it continued to suffer the effects of a lethal cocktail of Brexit uncertainty, slowing global growth and an impending General Election. These combined to stifle any chance of manufacturing crawling out of the contraction zone, where the sector was stuck for a seventh month in a row.

“Supply chain managers cited weakened domestic demand and one of the biggest falls in export orders for seven years as companies unravelled their pre-Brexit stocks and resulting in one of steepest reductions in purchasing since 2013. Inevitably, where new orders fall, jobs are sure to follow and manufacturing employment fell at its fastest pace since September 2012. Firms tried to balance their books by reducing overheads and improving efficiencies quickly, and staff numbers were the casualties.

“With this backdrop of pressures, the sector’s performance is unlikely to change any time soon, which means a bleak beginning for the industry in 2020.”

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