UK Manufacturing PMI: Industry downturn deepens to seven-month low

Posted on 1 Aug 2023 by James Devonshire

The UK manufacturing industry's downturn deepened in July, hitting a seven-month low, with output, new orders and export demand all declining, according to the latest S&P Global / CIPS UK Manufacturing PMI®.

July 2023 UK Manufacturing PMI key findings:

  • Output and new orders fall at faster rates
  • Weak global conditions hit export demand
  • Input prices fall for third successive month

July saw the seasonally adjusted UK Manufacturing PMI fall to 45.3, the lowest it has been in 2023, down on June’s reading of 46.5. A reading below 50 suggests contraction in the sector and we have now been in this territory for 12 months.

UK manufacturers across the board (consumer, intermediate and investment goods) saw rates of contraction in output, new orders and employment all accelerated last month. Businesses attributed the slump to weak domestic and overseas markets, overstocked customers and streamlining efforts within their own organisations.

Meanwhile, manufacturers said that average input prices fell for the third consecutive month in July. Increased competition between suppliers, weak input demand and
lower transportation and energy costs are often linked to such a reality.

Commenting on the latest survey results, Rob Dobson, Director at S&P Global Market Intelligence, said: “July saw a deepening of the UK’s manufacturing downturn. Output fell at the quickest pace since January, as overstocked clients, rising export losses, higher interest rates and the cost-of-living crisis coalesced to create a worrying intensification of the slump in demand. Although manufacturers maintain a generally positive outlook for the sector, with over half still expecting output to rise over the coming year, other forward-looking indicators show the mire that industry is currently facing. Domestic and export demand are weakening, and backlogs of work are declining sharply, all of which likely presages further cutbacks to production, employment and purchasing in the months ahead.

“The only upside is that prices are falling in this environment of sharply deteriorating demand, with cost pressures also helped lower by further repair to supply chains. Supplier performance improved for the sixth successive month, while raw material prices fell for the third month in a row. However, while good news for inflation, lower prices are largely a symptom of malaise and hence bode ill for manufacturers’ profits, which may in turn hit investment.”

Dr. John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, said: “The outlook for the manufacturing sector darkened again in July with a sudden fall in output and one of the worst since the pandemic. Manufacturers have registered a reduction in activity in all-bar one month during the past year as new work and employment levels shrank back.

“The lowest orders since last November from overseas customers was particularly surprising, just when signs of improvements in global marketplace activity had started to appear, new work from the Eurozone was subdued just as domestic work dried up.

“Although costs for some materials were still being driven higher by inflationary rises, taking a huge bite out of business cashflow, the cost of many more inputs showed sharp drops on the back of weak demand and more availability as delivery times improved for the sixth consecutive month. This opportunity for price reductions for end consumers may take a few months to filter through as firms ensure a more stable footing for their operations for the second half of 2023.

“Overall, it seems that recovery has stalled. Concerns about further interest rate rises making borrowing more expensive and customers reluctant to buy had the sector running on empty for another month but more than half of survey respondents kept their chins up and remained hopeful about the next 12 months.”

Cara Haffey, Manufacturing and Automotive lead at PwC UK said: “We see continued signs of strain for the sector with July’s PMI at 45.3, signalling the joint-weakest result since May 2020 and the lowest of 2023 so far. With the PMI remaining at a sub-50 level for 12 consecutive months, contractions in new business and output are outstaying their welcome in the sector. Encouragingly, we see that challenging operating environments are not dampening sector optimism too severely, as 53% of manufacturers reported that they expect output to rise over the coming year, an increase in positive sentiment from the six-month low in June.

“Obstacles very clearly remain in employment and retention, as the rate of employment decreased at a seven-month high for the tenth consecutive month in July. The PMI notes that companies linked lower staffing levels to demand weakness, strong competition and efforts to protect margins, however when considering that over half still expect output to rise over the coming year, thought must turn to equipping and skilling the workforces that are vital to delivering growth.

“Better news saw the quickening of average vendor delivery times in July, with supplier performance improving for the sixth month in a row and lead times shortening in the consumer, intermediate and investment goods sectors. Average input prices also fell for the third consecutive month in July. The question manufacturers will face is a balance between whether to take advantage of cheaper costs and increase output and product stocks for when output rises – or whether to reign in activity, reduce overstocking issues and streamline operations in a period of weakened demand.”

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