Ongoing
uncertainties surrounding Brexit, the economic outlook and the political
situation continued to weigh on the UK manufacturing sector during October.
Output and new order
inflows contracted, leading to further job losses. Firms also ramped up
stock-building and purchasing activity in the lead-up to the (postponed)
October Brexit departure date.
The headline
seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) rose to
49.6 in October, up for the second successive month but remaining below the
neutral 50.0 mark separating expansion from contraction. Please note that data
for the latest survey were collected from 11-28 October. This was before the
confirmation of the latest Brexit extension on the 28th and the passing of the
Early Parliamentary General Election Bill by the UK House of Commons on the
29th.
The downturn in
manufacturing production continued, although the rate of contraction slowed.
Firms reported that weaker inflows of new business, especially from the
domestic market, had led to a further scaling back of output. This was partly
offset by manufacturers who raised production to build-up stocks in advance of
the October Brexit deadline.
The level of
incoming new orders decreased for the sixth straight month in October, as
ongoing uncertainties surrounding Brexit, the economy and the domestic
political situation continued to weigh on demand. It was also despite a mild
improvement in overseas sales. New export business rose for the first time in
seven months, as clients based in the EU brought forward planned purchases to
before the (now delayed) Brexit departure date.
Job losses were seen
for the seventh consecutive month in October, with the rate of decline among
the steepest over the past decade. Lower employment reflected weak demand,
softer client confidence, the non-replacement of leavers and staff
redundancies. There were also reports citing Brexit uncertainty, in some cases
resulting in hiring freezes.
A number of firms
revisited their Brexit preparations during October, leading to higher levels of
input purchasing and a build-up of safety stocks.
Growth in
inventories of finished goods and purchases were at six-month highs, but
remained below the survey-record rates reached during the first quarter.
Price pressures
remained relatively contained at manufacturers during October. Input prices
were unchanged over the month, the first time they have failed to rise in over
three-and-a-half years. Output charge inflation was also among the weakest
registered over a similar period.
October saw a mild
improvement in business confidence to a three-month high, although the degree
of optimism remained among the lowest since future expectations data were first
collected in July 2012. Ongoing political, economic and Brexit uncertainties continued
to weigh on manufacturers' sentiment.
Rob
Dobson, Director at IHS Markit, which compiles the survey: “The manufacturing downturn continued at the start of
the final quarter as uncertainties surrounding Brexit, the economic outlook and
domestic politics all took their toll.
"However, the
underlying picture looks even darker than even these disappointing headline
numbers suggest, as output and new orders fell despite short-term boosts from
stock-building activity in advance of the October 31st Brexit deadline, which
included a rise in exports as clients in the EU sought to mitigate supply risk.
“The high degree of
uncertainty is hitting two areas of the manufacturing economy especially hard.
The first is the trend in employment, as job losses resulting from
disappointing sales are exacerbated by manufacturers implementing hiring
freezes until the outlook clears. The second is the investment goods industry,
where output and new orders are falling sharply as clients postpone capital
spending plans.
“With a further
Brexit extension confirmed and the prospect of a December general election, it
looks as if the spectre of uncertainty will cast its shadow over manufacturing
for the remainder of 2019.”
Seamus Nevin, Chief
Economist at Make UK, the manufacturers’ organisation, said global markets have
been having a rough time recently.
"In
that context, (this) disappointing news of further falls in output, new orders
– especially from UK based customers - and more job losses should not be a
surprise," he said. "Job cuts have happened for the seventh
consecutive month with the rate of decline among the sharpest in a decade.
“Many
manufacturers had some form of shutdown planned, while others were engaged in
expensive stock building activities in preparation for potential no deal shocks
to their supply chain. This together with the continued Brexit and now
electoral uncertainty means there is no end in sight to the roadblocks industry
is facing.”
