PMI beats expectations but still paints a bleak picture

Posted on 3 Nov 2008 by The Manufacturer

The decline UK manufacturing has continued to suffer over the last six months slowed in October after its heavy contraction in September, according to the latest CIPS purchasing managers’ index (PMI).

The PMI for last month revealed a rating of 41.5 compared with 41.2 the month before – the latter figure representing a 17-year low. A rating of 50 is neutral while above that figure means growth and below implies a downturn.

Output prices are at their lowest level for nine months. Manufacturers were unable to raise prices due to a lack of demand, the report said, though raw materials are now at a 39th month-low after spiralling astronomically in the middle months of this year.

New employment was down last month too.

Though the improvement on September was noted, Roy Ayliffe of CIPS said the situation remains grim. “Conditions for UK manufacturers remained brutal in October, as the turmoil in the world’s financial markets showed no signs of abating,” he said. “Purchasing managers in the sector have now reported six consecutive months of decline in production, endorsing industry reports that the UK is now technically in recession.”

Analysts now say a drop in interest rates from the Bank of England is needed to improve conditions.

The development was prophesized by Stephen Radley of EEF, The Manufacturers’ Organisation in his keynote presentation at The Manufacturer LIVE event last month.

He said: “With the economy in the first throes of a recession, there is a danger that business conditions could deteriorate even more rapidly.

“The Bank is now behind the curve in cutting interest rates and these unusual times call for unconventional measures. A full-point cut in the base rate is needed to prevent the downturn from gathering pace.”

Currently standing at 4.5 per cent, should the base rate receive a full per cent cut it would reach its lowest level in over 50 years.