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UK manufacturing PMI drops to lowest level

Posted on 19 Sep 2019 and read 749 times
UK manufacturing PMI drops to lowest level At 47.4 in August (down from 48.0 in July), the headline seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) fell to its lowest level since July 2012 (a reading above 50 indicates an expansion of the manufacturing sector compared to the previous month, below 50 represents a contraction, and 50 indicates no change).

The downward movement in the headline index was centred on the largest contraction in new work in 85 months. The survey data was collected between 12 and 27 August.

Steep reductions in new orders were registered across the consumer, intermediate and investment goods industries, contributing to the on-going downturns in output in all three product categories.

Where a decrease in new orders was reported, this was linked to weaker domestic and global economic conditions, low market confidence, Brexit concerns, business uncertainty and a slowdown in client spending.

The level of new export business contracted at the fastest rate in over seven years in August, with on-going global trade tensions, slower world economic growth and Brexit uncertainty all mentioned by manufacturers as factors contributing to reduced overseas demand.

There were also reports that some EU-based clients were “routing supply chains away from the UK due to Brexit”.

Inflows of new work from the USA and Asia also weakened.

Meanwhile, business optimism slumped to its lowest level since a question tracking expectations for future output was added to the survey in July 2012, although manufacturers say they still expect to see some output growth over the coming year (40% of them are forecasting expansion, compared to only 13% anticipating a decline).

Furthermore, manufacturing employment in August fell at one of the fastest rates in the past six-and-a-half years, with job cuts driven by cost-saving initiatives (including re-organisations and redundancies), slower economic growth and the continued impact of Brexit uncertainty.

Lee Collinson, head of manufacturing at Barclays, said: “The drop to a seven-year low in the latest PMI headline figure won’t come as too much of a surprise and reflects the continuing downturn in confidence felt by UK manufacturers.

“As well as having to negotiate the macro conditions at home, the sector continues to grapple with a prolonged period of Brexit uncertainty, which has clearly stymied much-needed investment decisions.

"As if weakening demand from the domestic market wasn’t enough, a global economic slowdown is impacting levels of export activity; and with some overseas businesses moving supply chains away from the UK, manufacturers are increasingly yearning for clarity on the future relationship with the EU.”