UK factory output slumps to 26-month low

Posted on 1 Sep 2011 by The Manufacturer

Manufacturing output in August fell to its lowest level in over two years, according to the Markit/CIPS manufacturing purchasing managers’ index.

The PMI survey, based on quizzing the purchasing managers at more than 600 companies, fell to 49 last month. Below 50 indicates that the sector is contracting.

Exports, especially new business targeting export markets, fell at its fastest rate since May 2009. For most of 2011 exports have been seen as the market segment driving the UK manufacturing recovery.

Surveys in the first two quarters of 2011 from several leading business advisers – CBI, EEF, PricewaterhouseCoopers, Deloitte, Barclays Corporate, Experian and more – have shown that exports were up and at their highest levels since before the recession.

While some of the contraction may be attributed to the August holiday lull, a PMI of below 50 for the first time in 26 months is a cause for concern for wider UK economic recovery, especially given the eurozone crisis.

“Looking at the manufacturing PMIs across Europe and the UK the picture is far from encouraging and growing global economic challenges appear to be translating into some softening of activity on the ground,” said Lee Hopley, EEF’s chief economist.

But she warned against over-zealous interpretation of the numbers. “We should be cautious about interpreting what looks like a more challenging period in the recovery as the beginning of a significant downturn. This wouldn’t appear to fit with [our earlier] survey reporting of lengthening lead times, limited spare capacity growing supply chains pressures, which is more in line with the sentiment we’re picking up on the ground that manufacturers are still busy, although more wary about the future.”