UK Manufacturing PMI: Industry downturn continues amid low demand, high costs

Posted on 2 Dec 2022 by James Devonshire

The UK manufacturing industry contracted further in November, as firms witnessed their output fall amid low demand and high costs, according to the latest S&P Global / CIPS UK Manufacturing PMI®.

November 2022 UK Manufacturing PMI key findings:

  • Intermediate goods remains weakest performing sector
  • Business sentiment dips to lowest since April 2020
  • Input price inflation eases to three-month low

Despite edging up slightly from 46.2 in October, November’s PMI figure of 46.5 is still in contraction territory, the four month in a row that the sector has remained below the neutral 50.0 mark and one of its lowest levels during the past 14 years.

Facing the worst foreign demand in two-and-a-half years, as well as a dip in domestic orders, companies saw their stocks of finished goods in warehouses reach a 43-month high. Delays with distribution delays and intentional stock-building also contributed to this latest rise.

As we keep hearing during our conversations with manufacturers, Brexit-related hangovers and ongoing supply chain disruption are still wreaking havoc among manufacturing organisations. Indeed, survey respondents cited challenges with securing numerous components on international markets, which further stymied their output levels.

As a result, manufacturers cut jobs for a second month in a row and at the fastest pace since November 2020. Meanwhile, overall business sentiment also dipped to its lowest level since April 2020 (early on in the COVID-19 pandemic), as recession fears, weak consumer spending and suppressed client optimism swell. Intermediate goods remained the weakest performing product category, witnessing the steepest drops in output, employment and new orders.

Nevertheless, there were some positives to come out of November’s figures. Manufacturers say they still expect production to grow over the coming year, with 44% forecasting expansion compared to just 18% anticipating a contraction.

Commenting on the latest survey results, Rob Dobson, Director at S&P Global Market Intelligence, said: “November saw a further contraction of the UK manufacturing sector, as weak demand, declining export sales, high energy prices and component shortages all hit industry hard.

“The outlook for the sector also darkened, as confidence among manufacturers fell to its lowest level since April 2020. Weak sentiment and declining intakes of new work led to job losses, a retrenchment in purchasing activity and an accumulation of finished goods inventory that will likely provide a further brake to output during the months ahead. Companies are also reporting rising recession fears, weak consumer spending and subdued client confidence.

“The trend in new export business was especially weak, as Brexit issues and supply chain stresses exacerbated the effects of a weakening global economic backdrop, leading to lower sales from the US, the EU and China. On a slightly more positive note, manufacturers saw a welcome easing in input price inflation. However, firms are still reporting that the direct and indirect impacts of high energy prices remain a major concern.”

Dr. John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, said: “A lethal cocktail of Brexit, logistics constraints, high costs and low demand contributed to the continued decline in manufacturing output in November which also fed into deteriorating job numbers for a second month in a row.

“Manufacturers reduced their operational capacity without the safety net of new pipelines of work as domestic and particularly export orders fell. Evaporating consumer confidence and fewer orders from previously strong markets such as the EU, US and China compounded the problem of a weakening marketplace.

“A depressing result for the country’s makers as optimism fell to its lowest since April 2020. One vestige of hope is that with stock levels rising at the fastest rate for over three and a half years, supplier deliveries to end consumers and other manufacturers should be much quicker once the economy starts to improve as pressure on delivery times was the least marked since January 2020.”

Maddie Walker, Industry X lead for Accenture in the UK, said: “With inflationary pressures, tight labour market conditions and the ongoing cost of living crisis continuing to bite, manufacturers are understandably pessimistic about the future which has hurt output. UK manufacturers may be tempted to rein in their R&D investment strategies to cut costs in the short-term, but it’s important they maintain a long-term plan for growth. Sustaining growth with transformative technologies will be critical to protecting factories from further disruption, which will help the sector to turn around the sluggish production that has defined much of this year.”

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