Output and orders at 10 year low

The Chartered Institute of Purchasing and Supply (CIPS), says recent months saw levels of output and new orders fall at rates unseen since late 1998, while input cost inflation has set new highs in each of the past two months. Further evidence of rising price pressures was also seen at the factory gate – with average output charges rising at the fastest rate since output price data were first collected in November 1999. The seasonally adjusted CIPS Purchasing Managers’ Index (PMI) fell to its lowest level since December 1998 and has posted a sub-50.0 reading in each of the past three months (readings below 50 indicate negative growth). The level of new work placed with UK manufacturers contracted at the fastest rate in over nine-and-a-half years in July. The New Orders Index posted a reading of 40.5 as companies cited weaker demand from domestic clients. There were also reports that the downturn in the housing market, the high cost of credit and competition from lower-cost foreign producers impacted on new order volumes. Levels of new business received from abroad also contracted during July. The latest data pointed to a further marked reduction in UK manufacturing output. Apart from weaker demand, companies reported that delays in the supply of certain raw materials had disrupted production schedules. July saw input cost inflation rise to a new survey record as the Input Prices Index posted a reading of 82.4. Rates of increase were either at, or close to, series highs in the consumer, intermediate and investment goods sectors. The high price of oil remained the principal factor pushing-up purchasing costs. Part of the rise in input prices was passed on to clients in July in the form of increased transportation and distribution charges. The latest increase in costs was also partly offset through reduced levels of staff. The Employment Index fell to a reading of 43.3 as headcount was reduced at the greatest extent since the final quarter of 2001. Job losses have now been recorded in each of the past four months, with the rate of decline accelerating through this period. Roy Ayliffe (pictured), Director of Professional Practice at the Chartered Institute of Purchasing and Supply, said “Purchasing Managers reported a third consecutive month of contraction in the UK manufacturing sector in July, as the combined forces of worsening market conditions and record cost inflation continued their relentless onslaught. “Levels of new business plummeted further and at the worst rate in over nine and a half years, with manufacturers facing increasingly tough conditions abroad as well as at home. "Shortages of raw materials – in addition to weaker demand – were a worrying factor behind the further fall in manufacturing output in July, while headcount was reduced to the greatest extent since late 2001 as part of the wider effort to combat record cost inflation."