The UK manufacturing sector continued to face a tough operating environment in August.
Weak market conditions, tariff uncertainties and downbeat client confidence all contributed to a sharp drop in new order intakes, with both domestic and overseas demand slumping.
The downturn in production volumes extended into its tenth successive month. The seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) posted 47.0 in August, down from July's six-month high of 48.0, but below the neutral 50.0 mark for the eleventh month in a row.
Production volumes showed comparative resilience in August. Although the downturn in output continued, the rate of contraction was marginal and only slightly steeper than in the prior survey month. Modest declines were seen in the consumer and investment goods industries, while output rose marginally at intermediate goods producers for the second successive month.
The main factor underlying manufacturing sector weakness was a slump in new work intakes. New orders contracted at the fastest pace in four months and to one of the greatest extents seen over the past two years. Manufacturers linked lower new work inflows to subdued client confidence, cost caution following the increases to minimum wages and employer NICs and tariff uncertainties.
Domestic demand remained weak and new export business contracted for the forty-third successive month. The steepest drop in new export orders was in the intermediate goods sector, where overseas orders fell to the greatest extent int wo years.
Rob Dobson, Director at S&P Global Market Intelligence, said: “Production volumes are still showing resilience in the face of global geopolitical uncertainty and US tariff policies, with both July and August having seen only slight contractions that were milder than those suffered earlier in the year. Business confidence has also lifted to a six-month high, reflecting hopes that the trading environment is starting to settle down.
“However, August also saw a steep drop in UK manufacturers' new orders, with total order books and overseas demand both falling at some of the fastest rates seen over the past two years. Weak market conditions, US tariffs and downbeat client confidence all contributed to the dearth of new contract wins. Job cuts were also reported for a tenth successive month, with factory headcounts dropping to one of the greatest extents post-pandemic.
“The outlook for the sector therefore clearly remains very uncertain. With manufacturers fearing that possible government policy decisions, including potential tax increases, could further hurt their competitiveness in domestic and export markets, the upcoming Budget will likely prove very important in guiding business confidence about the year ahead.”
