UK manufacturing sector remains subdued in March

CIPS 1 April 2016

Softer global economic growth was reported to have tempered the trend in new work received from key trading partners such as the US and mainland Europe.

UK manufacturing sector remains subdued in March

Data collected 11-24 March 2016 Key points:

- UK Manufacturing PMI at 51.0 in March

- Output growth unchanged from February’s seven-month low

- Manufacturing job losses recorded for third straight month

The opening quarter of 2016 saw the UK manufacturing sector register one of its weakest performances during the past three years. The seasonally adjusted Markit/CIPS Purchasing Managers’ Index® (PMI® ) posted 51.0 in March, only a couple of ticks higher than February’s 34- month low of 50.8. This left the quarterly average at a relatively subdued level of 51.6, equalling the lowest recorded since the PMI first moved back above the neutral 50.0 mark in early 2013. March saw production rise at a pace unchanged from February’s seven-month low. Where an increase in output was registered, this mainly reflected improved inflows of new business. The domestic market was the prime source of new contract wins.

The intermediate goods sector recorded the steepest expansions of both production and new business during the latest survey month. The performance of the consumer goods sector also remained mildly positive. Output of consumer products rose moderately following a solid rebound in new order volumes from February’s contraction. The trend in investment goods output growth continued to slow sharply, as new work received fell for the second straight month. Levels of new export business decreased for the third straight month in March. The latest decline was centred on the investment goods sector, as consumer and intermediate goods producers both reported modest gains. Softer global economic growth was reported to have tempered the trend in new work received from key trading partners such as the US and mainland Europe. There was also some mention of the weak oil and gas market impacting on sales to some regions – especially the Middle East. Manufacturing employment declined for the third consecutive month in March. Reflecting the trend in new business, the sharpest job cuts were initiated in the investment goods sector. In contrast, consumer and intermediate goods producers both raised their staffing levels. Company size data suggested that SMEs increased employment, but this was offset by cuts at larger manufacturers. Price pressures remained on the downside during March. Average factory gate charges where reduced slightly, as companies responded to increased competition. Part of the decrease in selling prices was driven by the pass through of lower input costs, which fell for the nineteenth successive month.

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply: “This month’s disappointing figures will serve as a reality check on the performance of the manufacturing sector. Operating in evidently challenging global economic conditions, respondents reported poor levels of new orders from home and abroad, as customers hesitated to ramp up demand and purchasing activity remained near stagnation. “Backlogs experienced a further decline, and have now fallen for 25 months, with March’s fall the sharpest during that sequence. Also stocks of raw materials were reduced at the fastest pace for 34 months as businesses held on to hard-won margins amidst a more competitive marketplace. “Perhaps the most frustrating setback came from the trend in employment. Jobs were being shed in some sectors and at larger businesses, though SMEs bucked this trend, by increasing their staff numbers. “Though the overall index showed a rise, the marginal increase will fuel concerns around strong supply chain continuity and any further impacts from major economic challenges such as the results of the Brexit vote.”

For industry comments, please call:

Trudy Salandiak

Tel: +44 1780 761576

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