The downturn in the
UK manufacturing sector continued in September.
Although the
contraction was shallower than the prior survey month, levels of output, new
orders, new export business and employment nonetheless fell further.
Stocks of purchases
and input buying volumes also rose for the first time in recent months, as some
companies restarted their Brexit preparations. The headline seasonally adjusted
IHS Markit/CIPS Purchasing Managers’ Index (PMI) rose slightly to 48.3 in September,
up from August's six-and-a-half year low of 47.4.
The headline index
has now remained below the neutral 50.0 mark for five successive months, its
longest sequence below that mark since mid-2009.Manufacturing production
continued to contract in September, as companies cut back output in response to
a further reduction in new order intakes.
The investment goods sector was by far the
weakest performer, seeing the steepest drops in both output and new business.
This reflected, at least in part, a reluctance among clients to commit to
capital expenditure due to ongoing market uncertainties (economic, political
and Brexit related).The consumer goods sector was the only category to see
output rise in September, as production in the intermediate goods industry
stagnated. The outlook for both sectors remained lacklustre however, as intakes
of new work decreased in both during September.
Companies reported
lower inflows of new work from the domestic and overseas markets, with the
trend in the former especially weak. Although the rate of decline in new export
business was much slower than in August, reports that Brexit uncertainty and
clients routing supply chains away from the UK still impacted on foreign
demand.
The ongoing weakness
exhibited by manufacturing filtered through to the labour market, with staffing
levels reduced at the fastest pace since February 2013. Companies reported that
capacity had been reduced due to lower demand, efforts to control costs, redundancies
and natural wastage. Job losses were widespread across the sector, with
declines seen across the consumer, intermediate and investment goods industries
and at SMEs and large-sized producers.
September saw
increased levels of input buying among manufacturers. A number of firms
reported that purchasing had been raised as part of restarting Brexit
preparations. This was also reflected in the trend in pre-production stocks,
which rose for the first time in five months. Inflationary pressures remained
relatively contained, as rates of increase in input costs and selling prices
both eased.
Business optimism
remained at a subdued level in September, despite improving from the
series-record low registered in the prior survey month. Companies reported that
ongoing uncertainties made forecasting future trends increasingly difficult.
Rob
Dobson, Director at IHS Markit, which compiles the survey: “The UK manufacturing downturn continued in
September, adding to signs that the sector may be sliding into recession.
Output, new orders and employment all fell further as rising political, trade
and economic uncertainties exacerbated concerns about Brexit.
“Some manufacturers
noted increased inventory building activity in preparation for the forthcoming
exit date, but the impact of such Brexit-related stock building was dwarfed by
weakening demand for other customers, due in part to clients routing supply chains
away from the UK.
“The rate of job
losses accelerated to a six-and-a-half-year high, highlighting how
manufacturers are increasingly seeking to cut costs. Similarly, the investment
goods sector was especially hard hit in September, seeing the sharpest drops in
production and new business, as clients reined in capital spending while
conditions remained volatile.
“The shroud of
uncertainty also weighed on manufacturers' confidence, which remained at one of
its lowest ebbs in the survey history. These headwinds all ensure that
manufacturing will likely remain a drag on UK economic growth during the months
ahead.”
Duncan
Brock, Group Director at the Chartered Institute of Procurement & Supply,
said it was clear that businesses were
less hopeful about the strength of the marketplace in generating manufacturing
growth in the coming months as new orders continued to fall away, and business
optimism remained at lower than average levels in all three sub-sectors.
Export orders also
dwindled for the sixth successive month, and domestically, clients avoided
spending and investing in this current landscape of prolonged uncertainty and
political indecision.
“As the Brexit
October deadline came into view, the sector offered two opposing strategies to
prepare for the UK’s departure," he added. "Where some companies were
burning through their levels of materials, others began building stocks up
again, fearful of an imminent and abrupt rupture in their supply chains.
European clients became more resigned and made concrete plans to move away from
UK suppliers and business closer to home seemed more reliable.
“This exhausting set
of conditions meant companies shed jobs at a rate not seen since 2013 as
redundancy packages were prepared and new staffing plans abandoned. Brexit
combined with a slowdown in the global economy, rising trade tensions and
potential oil supply difficulties in the Middle East, means we’re likely to see
a chilling end to the last quarter as Halloween approaches.”
