UK Manufacturing PMI: Industry downturn deepens as year ends

In December, the seasonally adjusted UK Manufacturing PMI dropped to 46.2, down from November’s seven-month high reading of 47.2 and lower than the earlier flash estimate of 46.4. A reading below 50 suggests contraction in the sector and we have now been in this territory for 17 months.

Ending the year on a decidedly weak note, industry witnessed an accelerated downturn in production volumes, fuelled by declining new work intakes both domestically and from abroad. Tighter inventory policies at manufacturers were also cited as a reason for the tenth successive month of production downturn.

All five PMI sub-components (new orders, output, employment, suppliers’ delivery times and stocks of purchases) remained consistent with a deterioration in operating conditions in December. A weak economic backdrop, clients delaying orders and poor weather conditions all contributed to December’s dip in new work received.

Manufacturing job losses continued for the fifteenth consecutive month, linked to redundancies, efficiency gains, hiring freezes and cost control policies.

December also saw business optimism shrink to a 12-month low, reflecting a faltering economy, client closures and high interest rates. Nevertheless, companies believe production levels will rise over the coming 12 months, as sales drives and new product launches come to fruition.

Finally, manufacturers increased their selling prices for the second straight month in December in an attempt to protect margins.

Commenting on the latest survey results, Rob Dobson, Director at S&P Global Market Intelligence, said: “UK manufacturing output contracted at an increased rate
at the end of 2023. The demand backdrop also remains frosty, with new orders sinking further as conditions remain tough in both the domestic market and in key export markets, notably the EU. The downturn has hit manufacturers’ confidence, which dipped to its lowest level in a year, and encouraged renewed cost caution with further cutbacks to stock levels, purchasing and employment.

“With concerns about high interest rates and the cost-ofliving crisis hurting demand, the outlook for manufacturers in the months ahead remains decidedly gloomy.

“The downturn in demand is having some positive effects on supply chains, however, with suppliers reducing their prices for raw materials and vendor lead times showing a further improvement.”

Industry reactions to December Manufacturing PMI

Dave Atkinson, SME & Mid Corporates head of manufacturing at Lloyds Bank, said: “Manufacturers are entering the new year with a bit of a hangover from the challenges of 2023. Despite this, many of those we speak to tell us they’ve become more agile at dealing with the headwinds posed by high input costs and energy bills.

“They’re also excited by the potential growth prospects provided by reshoring, new technologies and the green economy, with our latest Business Barometer reporting that the majority of firms expect their activity to increase over the next 12 months, as the sector looks to move onto more robust footing as early as possible in 2024.”

Mike Thornton, national head of manufacturing at RSM UK, said: “The manufacturing PMI in December continued to show signs of stability at 46.2, down only marginally from 47.2 in December. With the backlogs of work index rising to 39.5, the highest level in five months, and the new orders index reaching 46.6, the highest level since May 2023, the sector continues to show signs that are reason for cautious optimism.

“This outlook should be further fuelled through economic conditions becoming less volatile and interest rates stabilising, both creating more stable foundations for long-term investment. However, headwinds remain as the industry is still in a period of stagnation, coupled with low consumer confidence and unemployment rates increasing.”

Caroline Litchfield, partner and Head of Manufacturing and Supply Chain sector at Brabners, said: “December was reflective of a dismal year for the sector, with broad economic headwinds preventing manufacturers from securing growth for 10 consecutive months now.

“Nevertheless, many manufacturers are optimistic for the year ahead as fresh stimuli – including the Government’s £4.5bn advanced manufacturing pot and regional Investment Zones – create more fertile grounds for investment. Manufacturers will also be preparing for a longer-term boost from the new levy on carbon intensive imports announced for 2027, which will gradually begin to boost domestic demand.

“Incentives from Government are a major driver of innovation. However, this also relies on a secure flow of risk capital into entrepreneurial ideas and a highly skilled workforce. As we head into an election year and a potential period of political stasis, businesses taking a proactive approach to growth will be those best-placed to succeed.”