UK manufacturing PMI hits 29-month low

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The seasonally adjusted S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) fell to a 29-month low of 46.2 in October, down from 48.4 in September and marking the third consecutive month where the PMI has remained below the neutral 50.0 mark.

Output contracted for the fourth successive month, as a steep drop in new work received, weak export demand and supply-chain disruption led to a scaling back of both production and employment.

October saw new order intakes decline at the fastest pace since May 2020. The latest contraction was blamed on the weaker domestic market, already high stock levels at clients, subdued client confidence and inflationary pressures.

The impact of lower demand was felt across the industry. Although the rate of contraction in production volumes eased to a three-month low in October, the consumer, intermediate and investment goods sectors all saw output decline. The performance of the intermediate goods sector was especially weak.

Sales from overseas clients also fared poorly, with new export business decreasing for the ninth month running in October. Manufacturers cited the weakening global economic situation, softer Chinese demand, war in Ukraine and ongoing issues relating to Brexit as stifling export performance.

Business optimism dipped to a two-and-a-half-year low, as weak demand, recession fears, inflationary pressures and rising uncertainty hit confidence. However, 43% of the survey panel still forecast that production levels would be higher in 12 months' time, supported by new product launches and possible decreases in both economic and political volatility.

Price inflation remained substantial at the start of Q4, with both input costs and output charges rising at above survey-average rates, although rates of increase in both price measures eased slightly in October. Companies reported a vast array of items as up in price.
These included chemicals, electronics, energy, food, metals, packaging, paper and timber. Transportation and administration costs also rose. The war in Ukraine, general inflationary pressures and the sterling exchange rate all contributed to higher prices.

Industry reaction

Simon Jonsson, UK Head of Industrial Products at KPMG: “The volatility of the pound, a weakening order pipeline, together with expectations around interest rates all paint a challenging picture for the manufacturing sector. Many firms are also still experiencing supply shortages, which is compounding the issue. Without a strong pipeline of new work, parts of the manufacturing sector are pressing pause on post-pandemic capacity building, and worse - some firms are making redundancies to save on business costs. This is the first month of manufacturing job losses since late 2020. There is a strong manufacturing sector in the UK and manufacturers will be looking keenly to the November 17 autumn statement for the government to set out its agenda to ensure the UK economy remains competitive.”

Maddie Walker, Industry X lead at Accenture UK: “British manufacturers have borne the brunt of market volatility. The prospect of a slowdown in demand has hurt new orders significantly which were helping to offset the pressures of rising import costs, shipping delays and soaring energy prices. While headwinds show no sign of abating, manufacturers are still pursuing their plans to reach net-zero targets and becoming more efficient with digital technology. Going for growth with transformative technologies is critical to protecting factories from further disruption and will give a much-needed boost to productivity.”

David Atkinson, SME and mid corporates head of manufacturing at Lloyds Bank: “It has been another tough month for the industry, which craves stability. Political and economic stability gives manufacturers the confidence to plan and invest, which drives positive consumer sentiment and sales. Speaking to industry leaders, it’s clear the number of challenges they currently face surpasses anything they have previously experienced. Many businesses will have cash to invest, but with supply chain challenges, high energy costs, and labour shortages driving wage inflation, the current environment makes immediate investment decisions a challenging conundrum. “Manufacturers are hoping the next fiscal statement will provide the stability they need to help drive investment and long-term growth. But for now, they will continue to operate with caution.”