The downturn in the
UK manufacturing sector deepened at the end of 2019, as output contracted at
the fastest pace since July 2012.
Production fell in
response to declining intakes of new work from both domestic and overseas
clients, while efforts to reduce Brexit safety stocks also stymied output
volumes.
The headline
seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) fell to
47.5 in December, the second-weakest level for almost seven-and-a-half years
(the PMI stood at 47.4 in August 2019).
The PMI has posted
below the neutral mark of 50.0 in each of the past eight months. Data were
collected between the 5-18 December.
Manufacturing
production decreased at the sharpest pace in almost seven-and-a-half years.
Contractions were signalled in both the intermediate (fastest in five months)
and investment goods sectors (quickest in 89 months), whereas a marginal
expansion was signalled in the consumer goods category.
The level of new
work received declined for the eighth successive month in December. The decline
in total new business was among the steepest registered over the past
seven-and-a-half years, as inflows weakened from both domestic and overseas
clients. Lower new business intakes were linked to ongoing concerns surrounding
the economic, global trade and political outlooks. New export business fell for
the second month running.
Similar to the trend
in output, intermediate and investment goods producers saw steep reductions in
both total new work and new export orders. The declines seen in investment
goods were especially marked and the sharpest in over a decade. In contrast, consumer
goods producers saw improved intakes of new business from domestic and overseas
markets.
Business sentiment
remained positive in December. Over 43% of companies forecast output would be
higher one year from now, compared to only 10% anticipating a contraction.
Optimism was linked
to reduced uncertainty, new product launches, increased efficiency and improved
client confidence. The degree of confidence nonetheless remained subdued by the
historical standards of the survey and below that registered in November.
Manufacturing
employment was reduced for the ninth successive month in December, albeit at
the weakest pace since August. Job losses were registered across the consumer,
intermediate and investment goods sectors and also at SMEs and large-sized
companies. Lower headcounts reflected weaker demand, productivity gains, cost
reduction initiatives, ongoing uncertainties and recruitment freezes. Input
prices rose slightly for the first time in three months during December.
Manufacturers
responded by raising output charges to the greatest extent for six months.
Holdings of both purchased and finished goods inventory decreased, mainly due
to firms reducing Brexit safety stocks. The former also reflected a steep cut
in input buying volumes.
Rob
Dobson, Director at IHS Markit, which compiles the survey, said: “The UK manufacturing sector took a turn for the
worse at the end of 2019. Output fell at the quickest pace in seven-and-a-half
years as new order inflows decreased and Brexit safety stocks were reduced.
With demand weak and confidence remaining subdued, input purchasing was pared
back sharply and jobs cut for the ninth successive month.
“The downturn is
still being hardest felt at companies reliant on investment and
business-to-business spending. The steepest reduction in output was at
investment goods producers, as continued uncertainty meant new orders and new
export business suffered the steepest contractions in over a decade.
Intermediate goods producers also experienced marked drops in output and new
work received.
"There was a
pocket of growth, however, as consumer goods production edged higher. On this
basis, it looks like UK manufacturing and the broader economy may both start
the new decade as they began the last, too reliant on consumer spending and
still waiting for a sustained improvement in investment levels.”
Duncan
Brock, Group Director at the Chartered Institute of Procurement & Supply,
added that the pace of manufacturing’s
decline in December will set alarm bells ringing as production levels sank at
their fastest levels since July 2012 and with no sign of immediate recovery in
sight.
“As the downturn
deepened, Brexit uncertainty continued to dominate the business landscape and
impact on client confidence," he continued. "Combined with the
effects of a slowing global economy, new orders from domestic and export
markets dried up at one of the fastest rates seen in seven-and-a-half years.
“This impact
trickled down to job creation strategies, as the pace of job losses intensified
and companies were reluctant to commit to additional expense. Businesses
continued to be squeezed as input prices rose as a result of shortages and
transportation costs.
“In the closing
stages of the year the sector has ended on a dreary note. Though the result of
the General Election will bring some clarity to businesses, it still feels like
a long road ahead for manufacturing to recover its losses from this year and there
will still be some obstacles to overcome in 2020.”
