First manufacturing sector contraction in two years

Posted on 2 Aug 2011 by The Manufacturer

Following Friday's downbeat economic review from the CBI, the PMI revealed that the first contraction in the UK manufacturing sector since mid-2009 took place in July.

The Markit/Cips manufacturing purchasing managers’ index (PMI) fell to below 50 in July for the first time since the tough recessionary days of 2009.

The result of 49.1 on the PMI reflects predictions made last month that the manufacturing sector is suffering from a decline in confidence after a robust 2010.

In addition to this traditional measurement of industrial buoyancy, yesterday’s Markit/Cips report also reported the most significant job losses in the sector since March 2010. In the intervening time optimistic observations of recruitment activity had been pointed to as a sign of sector resilience. New business also declined sharply due to weak domestic demand, according to Markit.

Mark Lee, head of manufacturing at Barclays Corporate said: “Very weak domestic demand has effectively stalled any momentum that had built in the UK manufacturing sector over the past two years.
Mr Lee also pointed to what he sees as a disturbing for excessive leaning out of inventory. Mr Lee interprets this “trend of destocking” as preparation for “further declines in orders.”

Some manufacturers are weathering this set back better than others. It appears that increased activity in exports across a wide range of manufacturing subsectors has provided the hope that continued weakness in the Pound will cushion their financial prospects. Lee says: “Manufacturers that export continue to see some upside in ongoing sterling weakness, but for those companies focused on the domestic market, there is very little relief in sight at present.”

weak GDP results announced last week or the gloomy outlook given by the CBI economic review on Friday June 29.