UK Manufacturing PMI: Industry downturn eases in November

Posted on 3 Dec 2023 by James Devonshire

The UK manufacturing industry downturn eased in November, with industry potentially turning a corner as the end of the year approaches, according to the latest S&P Global / CIPS UK Manufacturing PMI®.

November 2023 UK Manufacturing PMI key findings:

  • Manufacturing PMI at 47.2 in November
  • Downturns in output and new orders ease
  • Cost-caution leads to lower employment

In November, the seasonally adjusted UK Manufacturing PMI rose to 47.2, up from October’s reading of 44.8 and higher than the earlier flash estimate of 46.7. A reading below 50 suggests contraction in the sector and we have now been in this territory for 16 months.

Despite all five PMI sub-components (new orders, output, employment, suppliers’ delivery times and stocks of purchases) remaining consistent with a deterioration in operating conditions in November, the rate of decline eased sharply. In fact, November’s PMI of 47.2 is the highest we’ve seen since March’s PMI of 47.9. So, although production and new orders both contracted again last month, we are slowly climbing towards the no-change mark of 50.

Weaker domestic demand, decreased intakes of new export business and destocking at both manufacturers and their clients were all cited as reasons for November’s production scale back.

Manufacturing job losses continued for the fourteenth consecutive month, and further analysis revealed that cuts at medium- and large-scale producers were only partly
offset by modest jobs growth at small-sized manufacturers.

Positively, business confidence edged higher in November, with 53% of manufacturers saying they expect production to increase over the next 12 months.

Finally, despite input prices for a number of goods falling – including chemicals, energy, food products, metals, packaging, paper, plastics, pulp and timber – manufacturers fractionally increased their selling prices last month in an attempt to repair margins.

Commenting on the latest survey results, Rob Dobson, Director at S&P Global Market Intelligence, said: “Although the downturn in production eased sharply in
November, the latest PMI report brings little festive cheer when the finer details are considered. With new order inflows and exports continuing to fall sharply, and clients
destocking, a sustained meaningful growth revival still looks elusive. Manufacturers are preparing for tough times ahead, with their continued caution leading to cutbacks in
staffing, inventories and purchasing.

“The underlying sector dynamics further highlight how this combination of high uncertainty and low confidence is impacting performance. The latest scaling back of production was mainly driven by weak business-tobusiness and capital spending, as output and new orders contracted in both the intermediate and investment goods sectors. In contrast, activity posted a solid uptick at consumer-facing manufacturers.”

Dr. John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, said: “Crawling upwards towards the no-change mark, the sector displayed some resilience as rates of contraction in output and new orders eased but overall conditions remain softer than hoped for as we move towards the end of 2023.

“A huge injection of uncertainty amongst customers meant new work fell for the eighth month in a row, as the UK economy continued along a fragile path unable to sustain solid marketplace activity. Orders from overseas were in an even more dire state and fell for the 22nd month.

“In stark contrast, optimism for the next 12 months showed a slight uplift as businesses hoped a new year could bring more stability and growth. However, other areas of concern include reduced spending on stock and also operational capacity as rising job losses signalled more difficult times ahead.”

Industry reactions to November Manufacturing PMI

Maddie Walker, Industry X lead for Accenture in the UK, said: “While we must remember that this is still the ninth consecutive month of contraction, the easing decline in production across the UK’s manufacturing sector is a much welcome improvement for the industry. Waning inflation has provided some relief and this is a moment for tentative optimism. Plans laid out by the Chancellor in the Autumn Statement, such as new regional advanced manufacturing investment zones, may also help to re-energise the industry.

“Nonetheless, while manufacturers may have passed the peak of economic difficulty, growth is still expected to be sluggish for the manufacturing industry in 2024. To maintain resilience, manufacturers will need to invest in digital technologies and automation – streamlining processes, fuelling their factories with AI, and optimising production in a persistently testing time.”

Boudewijn Driedonks, partner, at  McKinsey & Company, comments: “The rate of UK Manufacturing activity decline is starting to turn the corner – the figure is finally starting to creep up towards the magic 50, bringing a ray of hope to producers. Declining inflationary pressure and stable interest rates – although still high – likely add to this momentum. But let’s not forget – we have experienced nearly 12 months of declining activity and new orders have continued to fall. Even if the decline is starting to bend the curve, the UK may start 2024 with a manufacturing economy at significantly lower levels than previous years.

“This starting point poses challenges as many businesses finalise their annual budget cycle for 2024. Although manufacturing activity is faring slightly better than expected, margin management is going to become even more important, as subdued demand may persist at elevated levels for the foreseeable future while inflationary pressures have compressed margins.

“Across the Eurozone, the rate of decline also seems to have turned a corner, but it continues to illustrate how brittle the economy is. Sentiment across Europe shows a similar picture with both Germany and France, despite being very different economies, displaying a slight upward trend. While the outlook remains muted, manufacturers seem to take confidence from flattening inflation rates and there are some signs of business confidence returning as the worst concerns about the macro-economic environment start to soften.”

Dave Atkinson, SME & Mid Corporates head of manufacturing at Lloyds Bank, said: “A sharp drop in inflation at the start of the third quarter was not enough to push manufacturing sector output back into growth in November. A number of manufacturers are still feeling the pressures of high costs and interest rates.

“Recent conversations I’ve had with firms give me confidence in the sector’s prospects and our recent Business Barometer showed confidence among manufacturing firms reached a five-month high in November. Easing supply chain pressures, alongside the agility and innovation being shown by British manufacturers, puts the sector in a strong position ahead of the new year.

“The £4.5bn of funding for advanced manufacturing announced by the Chancellor at the Autumn Statement will also hopefully give manufacturers the confidence to invest in the technology needed to turbocharge the sector’s productivity and unlock growth.”

Cara Haffey, Manufacturing and Automotive lead at PwC UK, said: “Despite indicating a contraction in output for the last 16 months, November had some encouraging signs for the manufacturing sector, with the PMI rising to its highest level, at 47.2, since April. This was also the third successive month of the PMI rising, and this could be buoyed by festive demand in some categories.

“Unsurprisingly, there is a high level of caution being exercised within the sector, particularly on cost minimisation and efficiency gains. This caution will be even more acute as colder temperatures contribute to higher energy consumption and ever-evolving geopolitical events holding strong influence over commodity and raw material prices.

“So manufacturers might have reasons to be cheerful in 2024. Market confidence edged higher, with 53% expecting growth over the next year, and it is not before time, given the month-after month-declines that PMI readings have shown until today’s news. With input costs reducing, manufacturers are trying to recover margins and get back on a more positive footing. However, before getting too excited, job losses continue and domestic and international demand is still stubbornly slow. There will be a focus for some manufacturers on evolving designs and aligning new product development with market opportunities in mind for 2024.

“Finally, with much of the UK experiencing a somewhat sudden cold snap this week, colder temperatures and risks of snow and ice mean that adequate planning for supply chain resilience is vital for manufacturers to have minimal disruption to their operations throughout the winter period.”

Ginni Cooper, partner at MHA, comments: “This month’s Manufacturing PMI has shown a modest increase to 47.2 indicating that the sector is still concerned about the outlook for manufacturing in the short to medium term and reflecting that any upside from the announcements of last month’s Autumn Statement has yet to feed through significantly into sentiment.

“That said, there is no doubt that the announcement of investment into the sector in last month’s Autumn Statement was well received, and the “full expensing” tax breaks the Chancellor outlined will allow manufacturers to plan ahead with some certainty and invest in new plant and machinery, including AI and green technology, which will help to boost productivity.

“However, while the Labour party has indicated support for the permanent introduction of full expensing, the long-term future of other aspects of these policies is uncertain with an election looming.

“At MHA, we would like to see a commitment to manufacturing from all political parties to lie at the heart of a concrete industrial strategy, which we believe is essential to address some of the key issues that hamper growth in the UK.

“The sector continues to suffer from supply chain issues, productivity continues to be a problem, and despite the announcement on apprenticeships contained within the Autumn Statement, the industry still faces the perennial challenge of skills shortages.”

Caroline Litchfield, partner and Head of Manufacturing and Supply Chain sector at Brabners, said: “Despite output continuing to fall, November has the potential to be a milestone moment for the UK’s strategic manufacturing sector, with contraction slowing and £4.5bn of new funding announced in the Autumn Statement. Harnessed effectively, the funding has the potential to drive R&D-led growth across the aerospace, automotive and life sciences industries in the coming years.

“Regional manufacturing heartlands will be crucial to its success, with the fresh detail unveiled on the Greater Manchester, West Yorkshire and West Midlands Investment Zones demonstrating a more cohesive approach from government. Lancashire’s devolution deal was also a further step in the right direction for makers. Taken together, these initiatives will create a better environment to enhance collaboration, private investment and employment opportunities across the North.

“What’s more, the £50m earmarked for boosting skills in advanced manufacturing as part of the expansion of the Made Smarter Adoption programme should attract more much-needed young people into the sector.

“These announcements of course paint a brighter picture for the longer term. However, for now, the focus for many firms will be stimulating new orders while managing costs. Businesses should have a clearer picture of what those will be this winter thanks to easing inflation, which also presents some hope of an uptick in demand.”

Mike Thornton, national head of manufacturing at RSM UK, said: “The manufacturing PMI in November increased to 47.2, up from 44.8 in October, with the three-month upward trend showing stabilisation, which could be the light at the end of the tunnel the industry has been waiting for. Additional rises in the backlogs of work, employment, new export orders and output indices suggests that pipelines are being replenished as inflationary pressures start to ease.

“The government is clearly prioritising the sector with key announcements in last week’s Autumn Statement such as the launch of the Advanced Manufacturing Plan; the decision to make full expensing permanent and further commitment to regional investment zones. The suite of individual policies will provide some level of comfort to empower manufacturers to commit to long-term investments.

“Even the European Commission has offered a ‘Plan B’ to help mitigate the impact of the rules of origin headache that was coming down the track for UK manufacturers next year; but, it’s not all rosy.

“The industry is now in its second year of contraction. Although the Autumn Statement delivered positivity for manufacturers through isolated policies, the government is still lacking an overarching, long-term industrial strategy. Ahead of the 2024 Spring Budget, industry will be hoping government takes a more holistic approach, like the US, to unlock growth, innovation, talent retention and greater certainty for investment.”

Glynn Bellamy, UK Head of Industrial Products for KPMG, said: “A slowdown in inflation and a pause in interest rate hikes has slightly eased the pressure on manufacturers, but costs remain high in relative terms.

“Manufacturers exposed to weaker consumer demand, from both domestic and export markets, continue to suffer most from new order downturn – with post-pandemic destocking also a factor.

“The performance of other parts of the sector, such as aerospace and defence, are faring much better – but do still face their own supply chain challenges that limit output.”

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