CIPS News


UK manufacturing output contracts at fastest pace in almost seven-and-a-half years

CIPS 2 January 2020

Manufacturing employment was reduced for the ninth successive month in December, albeit at the weakest pace since August.

IHS MARKIT / CIPS UK MANUFACTURING PMI®

- UK Manufacturing PMI at 47.5 in December (Flash: 47.4)

- Output, new orders and new export orders fall sharply

- Job losses reported for ninth straight month

The downturn in the UK manufacturing sector deepened at the end of 2019, as output contracted at the fastest pace since July 2012. Production fell in response to declining intakes of new work from both domestic and overseas clients, while efforts to reduce Brexit safety stocks also stymied output volumes.

The headline seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) fell to 47.5 in December, the secondweakest level for almost seven-and-a-half years (the PMI stood at 47.4 in August 2019). The PMI has posted below the neutral mark of 50.0 in each of the past eight months. Data were collected between the 5-18 December.

Manufacturing production decreased at the sharpest pace in almost seven-and-a-half years. Contractions were signalled in both the intermediate (fastest in five months) and investment goods sectors (quickest in 89 months), whereas a marginal expansion was signalled in the consumer goods category.

The level of new work received declined for the eighth successive month in December. The decline in total new business was among the steepest registered over the past seven-and-a-half years, as inflows weakened from both domestic and overseas clients. Lower new business intakes were linked to ongoing concerns surrounding the economic, global trade and political outlooks. New export business fell for the second month running.

Similar to the trend in output, intermediate and investment goods producers saw steep reductions in both total new work and new export orders. The declines seen in investment goods were especially marked and the sharpest in over a decade. In contrast, consumer goods producers saw improved intakes of new business from domestic and overseas markets.

Business sentiment remained positive in December. Over 43% of companies forecast output would be higher one year from now, compared to only 10% anticipating a contraction. Optimism was linked to reduced uncertainty, new product launches, increased efficiency and improved client confidence. The degree of confidence nonetheless remained subdued by the historical standards of the survey and below that registered in November.

Manufacturing employment was reduced for the ninth successive month in December, albeit at the weakest pace since August. Job losses were registered across the consumer, intermediate and investment goods sectors and also at SMEs and large-sized companies. Lower headcounts reflected weaker demand, productivity gains, cost reduction initiatives, ongoing uncertainties and recruitment freezes. Input prices rose slightly for the first time in three months during December. Manufacturers responded by raising output charges to the greatest extent for six months. Holdings of both purchased and finished goods inventory decreased, mainly due to firms reducing Brexit safety stocks. The former also reflected a steep cut in input buying volumes.

Rob Dobson, Director at IHS Markit, which compiles the survey: “The UK manufacturing sector took a turn for the worse at the end of 2019. Output fell at the quickest pace in seven-and-a-half years as new order inflows decreased and Brexit safety stocks were reduced. With demand weak and confidence remaining subdued, input purchasing was pared back sharply and jobs cut for the ninth successive month.

“The downturn is still being hardest felt at companies reliant on investment and business-to-business spending. The steepest reduction in output was at investment goods producers, as continued uncertainty meant new orders and new export business suffered the steepest contractions in over a decade. Intermediate goods producers also experienced marked drops in output and new work received. There was a pocket of growth, however, as consumer goods production edged higher. On this basis, it looks like UK manufacturing and the broader economy may both start the new decade as they began the last, too reliant on consumer spending and still waiting for a sustained improvement in investment levels.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply: “The pace of manufacturing’s decline in December will set alarm bells ringing as production levels sank at their fastest levels since July 2012 and with no sign of immediate recovery in sight.

“As the downturn deepened, Brexit uncertainty continued to dominate the business landscape and impact on client confidence. Combined with the effects of a slowing global economy, new orders from domestic and export markets dried up at one of the fastest rates seen in seven-and-a-half years.

“This impact trickled down to job creation strategies, as the pace of job losses intensified and companies were reluctant to commit to additional expense. Businesses continued to be squeezed as input prices rose as a result of shortages and transportation costs.

“In the closing stages of the year the sector has ended on a dreary note. Though the result of the General Election will bring some clarity to businesses, it still feels like a long road ahead for manufacturing to recover its losses from this year and there will still be some obstacles to overcome in 2020.”

CIPS Trudy Salandiak Corporate Communications T: +44-1780-761576 trudy.salandiak@cips.org

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