CIPS News


UK manufacturing new orders and employment fall for first time since mid-2016

CIPS 1 November 2018

The lacklustre performance of the sector filtered through to the labour market, with manufacturing employment declining for the first time since July 2016.

IHS MARKIT / CIPS UK MANUFACTURING PMI®

- UK Manufacturing PMI falls to 51.1 in October

- New orders and employment decline for first time in 27 months

- Input cost and output price inflation both ease

Conditions in the UK manufacturing sector slowed sharply during October. Output growth weakened, while new order inflows and employment both declined for the first time since July 2016 (the PMI survey directly following the EU referendum). The drop in new business was partly driven by rising global trade tensions and Brexit uncertainties.

The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) fell to a 27-month low of 51.1, down from September's revised reading of 53.6 (originally published as 53.8). Data collection was undertaken between 12-26 October, closing before the Chancellor's Budget announcement on Monday 29th.

Companies linked the decline in manufacturing new orders to lower inflows of new work from overseas and softer growth of domestic demand. The weakness in total new orders was mainly centred on the consumer goods sector, as the intermediate and investment goods categories both posted mild expansions.

Foreign demand decreased for the second time in the past three months during October. Some companies reported that Brexit uncertainties had negatively impacted inflows of new work from within the EU. Others focussed more attention on rising global trade tensions and weaker demand from the world autos sector.

The deterioration in new orders led to a sharp slowdown in the rate of expansion of manufacturing production. Output growth was the weakest since the current sequence of increase began in August 2016. Growth was signalled in the intermediate and investment goods sectors, whereas the consumer goods category saw a mild fall in production.

The lacklustre performance of the sector filtered through to the labour market, with manufacturing employment declining for the first time since July 2016. Staffing levels rose at SMEs, but fell for the third straight month at large-sized companies. Where job losses were reported, this was linked to the decline in new work received, staff reorganisations, redundancies and efforts to control costs.

Cost-control initiatives and efforts to protect cash flow also contributed to a decline in raw material purchasing (the first since July 2016) and lower stock holdings. Inventories of finished goods and purchases both edged lower in October.

Input price inflation remained marked in October, despite easing to a 28-month low. Companies linked the latest increase to the higher costs of aluminium, energy, oil, steel and timber, rising import duties, exchange rate fluctuations, market volatility and Brexit uncertainty. Supply-side constraints also led to higher purchasing costs. Output charges rose at the slowest pace in just over two years.

UK manufacturers maintained a positive outlook in October, with over 48% expecting output to be higher one year from now. Optimism reflected new product launches, new capacity and export opportunities.

Rob Dobson, Director at IHS Markit, which compiles the survey: “October saw a worrying turnaround in the performance of the UK manufacturing sector. At current levels, the survey indicates that factory output could contract in the fourth quarter, dropping by 0.2%. New orders and employment both fell for the first time since the Brexit vote as domestic and overseas demand were hit by a combination of Brexit uncertainties, rising global trade tensions and especially weak demand for autos.

"Alongside the halt in hiring, the increasingly defensive position of UK manufacturers was also reflected in the slight decreases in purchasing activity and inventory holdings, which firms linked to protecting cash flow and cost-cutting. There was some better news on the prices front, however, with input cost inflation dipping to its lowest for over two years as many global commodity prices fell.

"Looking ahead, manufacturers still maintain a positive outlook for production over the coming year, with 48% forecasting expansion. That said, the second half of the year so far has also seen confidence remain low compared to its long-run average, with views on prospects darkening again in October amid rising Brexit-related uncertainties and escalating global trade tensions."

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply: “Alarm bells were ringing in the sector this month as the Index slipped closer to edge of the no-change mark with purchasing falling for the first time in over two years. Overall activity was marred by a drop in export orders and continuing weak domestic demand as Brexit took another bite out of client confidence.

"To see inflows of new orders first decline since the middle of 2016 following the referendum, will send shivers down the spine of business. Any hope that the current situation would not continue to impact has surely now evaporated. Employment was also affected with lower levels of hiring, as companies tried to control their costs. Job seekers will find the hiring landscape less friendly during the run-up to departure.

"Suppliers remained under the cosh and delivered little hope for manufacturers with any work in hand that they would have the necessary materials to complete orders. With delays at ports and shortages of certain materials, lead times were longer across all sectors.

"However, optimism remained relatively buoyant for the coming year. It’s the medium-term outlook that looks bleak unless the Brexit negotiations bring some certainty ending this eternal waiting game.”

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