UK Manufacturing PMI: Fall in output sees industry hit 25-month low

Posted on 1 Aug 2022 by James Devonshire

The manufacturing industry weakened to a 25-month low in July, according to the latest S&P Global / CIPS UK Manufacturing PMI®.

July 2022 UK Manufacturing PMI key findings:

  • Manufacturing PMI falls to 25-month low
  • Output falls in consumer and intermediate goods industries
  • Job creation accelerates as companies address staff shortages

For the first time in over two years, the UK manufacturing sector saw output contract in July, as new orders and exports both continue their decline. The seasonally adjusted S&P Global / CIPS UK Manufacturing Purchasing Managers’ Index® (PMI®) fell to 52.1 in July, down from 52.8 in June. The last time manufacturing output contracted was back in May 2020.

Manufacturers attributed the decrease in output to reduced intakes of new work and weaker market demand, as well as difficulties in sourcing components and transportation delays. The consumer and intermediate goods sub-industries saw output wane the most. The ongoing cost of living crisis, client uncertainty and the recent heatwave were all cited as factors behind the fall in domestic demand and new orders.

However, despite the order and output slump, manufacturing organisations did make inroads in addressing the staff shortages that have been hamstringing the sector. Indeed, employment accelerated to a three-month high in July, with firms increasing their headcounts to address staff shortages and support their strategic growth plans.

Finally, it looks as though cost inflation at manufacturers and supply chain pressures have both passed their respective peaks. Yet this reality did little to boost optimism among businesses, with levels remaining unchanged from June’s two-year low.

Stock image - worker grinding casting in manufacturing facility. Image credit: Shutterstock

Image courtesy of Shutterstock

Commenting on the latest survey results, Rob Dobson, Director at S&P Global Market Intelligence, said: “The UK manufacturing sector shifted into reverse gear at the start of the third quarter. Output contracted for the first time since May 2020, as new order intakes suffered the first back-to-back monthly decreases for two years. Rising market uncertainty, the cost of living crisis, war in Ukraine, ongoing supply issues and inflationary pressures are all hitting demand for goods at the same time, while lingering post-Brexit issues and the darkening global economic backdrop are hampering exports. “With the Bank of England implementing further interest rate hikes to combat inflation, the outlook is beset with downside risks. With this in mind, the continued low degree of optimism among manufacturers is of little surprise. “It wasn’t all bad news though, with further signs that cost inflation at manufacturers and supply pressures are already passed their respective peaks. Accelerated job growth as companies address staff shortages was also a plus, although may be at risk if the downturn becomes more entrenched over the coming months.”

Dan Farrell, Managing Director at Accenture, Industry X, said: Manufacturing growth in the UK continues to slow due to uncertainty relating to high inflation, surging costs, and dwindling demand. The ongoing impact of supply shortages will understandably be reflected in knocks to business confidence. However there are shoots of optimism. To steady the ship, manufacturers are pursuing long-term strategies in technology and training which will improve operations and boost productivity. With upskilled people leveraging more sophisticated digital technology, like digital twins, robotics and AI, manufacturers can invest their way to growth.”

Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, added: “July’s results may have shown a marginal reduction in manufacturing output but its significance as the first fall since May 2020 should make business leaders and policymakers sit up and take notice. “Output from the consumer goods sector went into contraction along with new orders and the signs show this trend will continue towards the autumn months. A reduction in the level of new orders from domestic customers clearly showed that the pressure of cost of living rises for basics such as fuel and energy made consumers think twice about non-essential purchases. “The appetite for overseas orders were similarly affected by challenges in global economic growth, disruption in supply, transportation and customs inefficiencies at ports where order levels from the US and China fell back. Even a further easing of supply chain pressures was not enough as lead times continued to be a trial of endurance at historically high levels. “The rate of cost inflation also slowed marginally but did nothing to improve the mood of manufacturers with optimism unchanged from last month’s low levels.”

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