UK Manufacturing PMI: Industry continues to contract as demand dips

Posted on 4 Jul 2023 by James Devonshire

The UK manufacturing industry's downturn continued as quarter two came to an end, with output, new orders and employment all declining, according to the latest S&P Global / CIPS UK Manufacturing PMI®.

June 2023 UK Manufacturing PMI key findings:

  • Manufacturing PMI at 46.5 in June
  • Output falls in intermediate and investment goods sectors
  • Input prices and output charges both fall

June saw the seasonally adjusted UK Manufacturing PMI fall to a six-month low of 46.5 (a reading below 50 suggests contraction in the sector), down on May’s reading of 47.1 but above the flash estimate of 46.2. Despite price and supply chain pressures showing signs of easing, manufacturing activity shrank further, which it has now done for each of the past 11 months.

In June, all five PMI components (output, new orders, stocks of purchases, employment and suppliers’ delivery times) signposted the continuation of the sector’s current downturn.

Nevertheless, optimism among manufacturers – despite dipping to a six-month low – remained positive, with 53% still forecasting growth over the next 12 months. Manufacturers cited new product launches and planned spending on sales, marketing and capital investment as potential reasons to see production increase over the coming year.

In the face of subdued output and new orders, manufacturing organisations reassessed their staffing requirements, leading to employment falling for the nine month in a row.

Commenting on the latest survey results, Rob Dobson, Director at S&P Global Market Intelligence, said: “The UK manufacturing sector continued to report recessionary conditions in June. The headline PMI dropped to a six-month low as output, new orders and employment all suffered further declines. Producers are being hit by weak domestic and export market conditions with clients showing a greater reluctance to commit to spending due to market uncertainty, increased competition and elevated costs. This is also impacting business optimism and stoking fears among some manufacturers that client spending may shift to lower cost rivals and markets. Although some respite is being offered in the short-term by reduced pressures on supply chains and costs, these remain a symptom of the current weakness of demand faced by the sector and are therefore unlikely to play a role in boosting production moving forward. Manufacturers therefore remain in defence mode, looking to cut back spending on purchasing and employment wherever possible and release capital tied up in stocks.”

Dr. John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, said: “The downturn in the manufacturing sector gathered pace in June with the PMI at its lowest level since December and has now signalled contraction in every month for almost a year.

“A combination of depressed sales from domestic and overseas markets and strong price pressures hanging around has resulted in levels of new business reducing for the third month in a row. Brexit-related controls impacted on levels of new orders from the EU but there were signs of some pick up in the Middle East as economies around the world showed some improvement at varying speeds.

“However, generally, there is little in this month’s figures to encourage the industry. As business operations shrank to fit market opportunities, manufacturers reduced headcounts for the ninth month in a row with nonreplacement of leavers and some job shedding.

“The UK has avoided recession by the skin of its teeth according to official government data, but manufacturers are reducing stock levels and buying and investing less just to keep their heads above water as optimism recorded a six-month low amongst businesses about the sector’s chances in the next 12 months.”

Maddie Walker, Industry X lead for Accenture in the UK, said: “The financial pressures facing consumers have rarely been out of the headlines over the past few months and, as these figures show, the situation is no different for the UK’s manufacturing sector. Despite input costs slightly declining, a higher-than-expected hike in interest rates prolongs the prospect of increased business costs and squeezed consumers, which is forcing many to reduce production until demand revives. Faced with such tough market conditions the sector must look to build resilience wherever it can, shifting to automation and robotics to drive efficiencies and investing in programmes to foster the skills the workforce is likely to need in the future.”

Cara Haffey, UK Manufacturing and Automotive lead at PwC UK, said: “Today’s PMI update provides a six-month low of 46.5 for the sector. Despite output contracting for the fourth successive month at the end of the second quarter, it is, however, encouraging to note 53% of manufacturers still forecast growth over the coming 12 months, despite optimism dipping to a six-month low.

“With average input costs reducing for a second consecutive month, and notably to the greatest extent since February 2016, weak demand from both domestic and overseas markets saw a decrease in new order intakes for the third month in a row. With foreign demand deteriorating for the seventeenth consecutive month and at the quickest pace of the year so far, this will no doubt be straining market optimism.

“Lastly, it’s important to consider how reductions in output and new orders can in turn impact on staffing, with employment falling for a ninth consecutive month – the sharpest rate since March this year. There is a risk that workforce stability in the sector could be compromised if employment rates continue to fall, as the question emerging for manufacturers will be how they can attract and retain workforces – especially with over half still forecasting growth over the coming year.

“With PwC’s Hopes and Fears survey finding that 23% of UK workers plan to switch jobs in the next 12 months – up from 18% last year – investing more into existing workforces not only through pay, but also through retraining and progression, should help in terms of retention and and addressing unwanted churn.”

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