CIPS News


UK manufacturing upturn slows as new export orders contract for first time since April 2016

CIPS 3 September 2018

Job creation slows to near-stagnation

UK manufacturing upturn slows as new export orders contract for first time since April 2016

IHS Markit/CIPS UK Manufacturing PMI®

- UK Manufacturing PMI at 25-month low of 52.8 in August

- Job creation slows to near-stagnation

- Business optimism dips to 22-month low

August saw further signs of slowdown in the UK manufacturing sector. Rates of expansion in output and new orders eased following the first contraction in new export business for over two years. The subdued performance of the sector also transmitted itself to the labour market, with the pace of manufacturing job creation slumping to near-stagnation.

The seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) posted 52.8 in August, down from a revised reading of 53.8 in July (originally reported as 54.0). The PMI has posted above the neutral 50.0 mark for 25 successive months, although the latest reading is the lowest registered during that sequence.

Manufacturing production rose at the slowest pace in 17 months in August, as growth of new order inflows eased to its weakest during its current 25- month sequence of expansion. Although there were some reports of softer growth of new work from the domestic market, the main drag was the trend in new export orders.

Foreign demand decreased for the first time since April 2016, despite the continued relative weakness of the sterling exchange rate. Some firms linked lower inflows of new work from abroad to the recent weaker pace of expansion of the world economy.

The ongoing slowdown of manufacturing output and new orders had an impact on both the labour market and business confidence during August. The pace of job creation eased to near-stagnation, as cuts at large enterprises offset further increases at SMEs.

Although companies maintained a positive outlook, with 47% expecting higher production in one year’s time, optimism dipped to a 22-month low in August. Business confidence was attributed to new capacity, expected growth of new export orders, planned investment and new product launches. However, some panellists also noted concerns about the ongoing uncertainty about Brexit and the exchange rate.

Price inflationary pressures remained relatively strong in August, with both output charges and input costs rising at above survey average rates. Companies reported that purchase prices increased due to higher costs for metals, electronic components, energy and a range of other inputs. This was, in turn, passed on to clients in the form of increased selling prices. Shortages of raw materials and supply-chain constraints also contributed to an increase in purchasing costs. Average vendor delivery times lengthened markedly in August, albeit to the lowest extent in four months. Some companies noted that transport delays had also had a negative impact on supplier delivery times.

Rob Dobson, Director at IHS Markit, which compiles the survey: “The performance of the UK manufacturing sector looked increasingly lacklustre in August. The headline PMI fell to its lowest level for over two years, as growth of output and new orders slowed and the pace of job creation slumped to nearstagnation. Based on its historical relationship with official ONS data, the latest PMI report is broadly consistent with zero growth in manufacturing production, meaning the sector will likely fail to provide any support to the wider UK economy in the third quarter.

“Although slower growth of domestic demand contributed to manufacturing’s weak performance, the main constraint was the trend in new export business. Foreign demand declined for the first time since April 2016, despite the weakness of sterling, amid reports of slower global economic growth and the increasingly uncertain trading environment. Inflows of new work from both domestic and overseas sources will need to strengthen if manufacturing is to show renewed vigour in the coming months.

“Looking ahead, manufacturers’ optimism about the outlook for the year ahead has been receding in recent months and is now at a 22-month low. While a hoped-for improvement in new export order growth and new product launches are forecast to stimulate future expansion, manufacturers are also expressing rising concerns about the uncertain backdrop of Brexit.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply: “Fears for a stalling manufacturing sector took a step closer to becoming a reality this month with the most disappointing performance for two years.

“The lifeline of strong export orders enjoyed since May 2016 dried up, as the attraction of a weaker pound was not enough to sustain the momentum. The domestic market once again failed to make up any shortfall.

“The weaker trends in both output and new orders impacted on job creation as larger corporates scaled back from hiring new staff and business optimism weakened. Purchasing prices continued their steep climb, affected by material shortages and worsening supplier performance making life more difficult.

“With a subdued global economy threatened by escalating trade wars and Brexit uncertainty making its mark, it’s unclear where future opportunities to sustain the health of the sector will come from.”

For industry comments, please call:

CIPS Trudy Salandiak

Tel: +44 1780 761576

Email: trudy.salandiak@cips.org

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