UK Manufacturing PMI: Industry output and new orders contract amid weak domestic and export markets

Posted on 2 Oct 2023 by James Devonshire

The UK manufacturing industry's downturn continued at the end of Q3 2023, with output and new orders both contracting as demand from both domestic and foreign markets weakened, according to the latest S&P Global / CIPS UK Manufacturing PMI®.

September 2023 UK Manufacturing PMI key findings:

  • Manufacturing PMI at 44.3, up from 43.0 in August
  • Output scaled back across all sub-sectors
  • Input prices fall further; healing of supply chains continues

September saw the seasonally adjusted UK Manufacturing PMI rise slightly to 44.3, up on August’s 39-month low of 43. A reading below 50 suggests contraction in the sector and we have now been in this territory for 14 months.

Manufacturing output declined for the seventh successive month in September, as manufacturers wound down production in the face of fewer orders. Marklet uncertainty, the cost of living crisis and weak conditions in overseas markets were all cited as reasons behind the lower demand. There were reports of lower demand from within Europe, the US, mainland China and Brazil.

Employment in the sector also declined for the twelfth consecutive month, with September’s figures accounting for the second steepest rate of decline during this period. Job losses were registered across the consumer, intermediate and investment goods industries and at small, medium and large-scale producers.

Nevertheless, the sector’s outlook remains upbeat overall – despite dipping slightly in September – with 55% of companies saying they expect to witness growth over the next 12 months.

Commenting on the latest survey results, Rob Dobson, Director at S&P Global Market Intelligence, said: “September saw the manufacturing sector still mired in contraction territory, as weak conditions at home and abroad hit new order intakes and led to a further scaling back of production volumes. The cost-of-living crisis and recent rapid rise in interest rates are taking their toll, according to producers, raising the possibility of the broader UK economy slipping back into contraction during the second half of the year.

“The downturn is being felt throughout the manufacturing sector, with demand falling from both households and businesses. The resulting rise in caution at manufacturers is driving risk aversion and shifting their focus towards margin protection and cost control, highlighted by further cuts in employment, purchasing and inventories. These all point to companies battening down the hatches in expectation of stormy conditions ahead.

“There was slightly better news for producers on the price front, as a mix of lower costs and rising selling prices aided margin protection efforts. However, with oil prices on the rise, the environment may become less disinflationary in the coming months.”

Dr. John Glen, Chief Economist at the Chartered Institute of Procurement & Supply, said: “Uncertainty in the market and low demand resulted in a difficult end to the quarter for the manufacturing sector, with today’s results putting paid to any hope that falling inflation was a sign of better things to come.

“A subdued global economy and a continued cost-of-living crisis in the UK means the industry is facing the dual challenge of low demand both at home and abroad. New orders and new export business fell in September, causing output to decline for the seventh successive month.

“There are some small shoots of good news for those looking for grounds for optimism. The drop in demand gave manufacturers space to work through backlogs and build up capacity, while the easing of pressure on supply chains resulted in an improvement in the average supplier delivery times.

“As the Conservative Party gathers in Manchester this week, the manufacturing sector will be looking for policies that can restore business and consumer confidence and help drive back demand.”

Maddie Walker, Industry X lead for Accenture in the UK, said: “Following the consecutive downturns we have seen in recent months, and the UK teetering on the edge of a recession, it is unsurprising to see that the manufacturing sector remains weak. Despite the halt in rising interest rates for the first time in almost two years and input costs starting to decrease, low consumer demand and market uncertainty are keeping new orders low. News this month that the UK has overtaken France to become the eighth largest manufacturing economy in the world will come as little reassurance if manufacturers feel this position cannot be maintained.

“Despite the challenging macroeconomic environment, many firms are, however, forecasting growth in the coming year. To match such optimism with practical action, manufacturing businesses should focus on streamlining supply chains, adopting digital technologies and investing in workforce skills for the future.”

Huw Howells, Managing Director of Manufacturing and Industrials at Lloyds Bank, said: “The latest data shows manufacturers continue to be affected by a challenging economic landscape, even with inflation rates edging lower in recent months. “However, we’re still seeing some more positive signals. Businesses across the sector are looking to the future by investing in technology, while we have seen some bumper acquisitions in recent weeks, with large transactions in aerospace and defence, and paper and packaging. This strong M&A activity in key areas of manufacturing offers encouraging signs for the future.

“There are also promising signs for manufacturers in terms of energy security, with pressure on the energy grid seen as being less of a concern this winter and gas storage is above usual planning levels in the UK and Europe. Both factors should help support manufacturing activity and pricing over the coming months.”

Cara Haffey, Manufacturing and Automotive Lead at PwC UK said: “The UK manufacturing sector continues to grapple with lowered activity amid cost inflation and global economic uncertainty as the PMI posted 44.3 in September, up slightly from August’s 39-month record low of 43.0, but still demonstrating the continued contraction of output.

“Weak ordering demand leads manufacturers to seek to protect their margins and cash flow, and it’s no surprise to see that September saw sector employment reduced for the twelfth consecutive month, with the rate of decline plunging to the second-steepest during that time period.

“On a more optimistic note, supply chains – which have already demonstrated substantial resilience and agility – are showing some signs of relief, with average supplier delivery times improving for the eighth successive month in September. Input costs also saw a decrease thanks to raw materials such as metals reducing in price, as well as lower energy costs. However, inflation still continues to subdue activity, as average selling prices rose for the first time in four months.

“Sector-side, despite the ongoing adversity, there seems to be a good level of confidence and morale, with the PMI noting that 55% of companies are expecting growth over the coming year. Being positive in a storm is a feature of the sector and hopefully this resilience continues.”

Caroline Litchfield, partner and Head of Manufacturing and Supply Chain sector at Brabners, said: “September’s data further compounds a difficult year for the sector. However, the continued easing in inflation and the prospect of interest rates having peaked have the potential to boost consumer demand and order books in the coming months.

“Manufacturers need clarity though if they are to seize on any uptick and continue to invest with confidence. The Prime Minister’s decision to push the UK’s net zero deadlines back might be pragmatic but will have been met with dismay by those that have pressed ahead with decarbonisation.

“The European Commission’s decision to postpone new Brexit rules for the origin of electric car batteries will be welcomed by a good many automotive manufacturers on both sides of the Channel but, again, provides further mixed messaging from policymakers.”

Andrew Perris, UK Head of FX at Bibby Financial Services, said: “This month’s Manufacturing PMI provides some solace after many consecutive months of decline. However, the improvement remains modest, and the sector continues to be challenged.

“Indeed, new orders continue to fall faster than outputs, and although this downturn has eased slightly on the levels seen in August, it remains steep. Beyond an ongoing reduction in demand, businesses also have to navigate the ever-present challenges related to the cost-of-doing-business crisis – and as the wider international economic backdrop remains weak, manufacturing businesses that trade internationally have the added complication of juggling ever shifting foreign exchange rates.

“Today’s news is a reflection of the sector’s unwavering resilience, but certainly no one in the manufacturing sector will be breathing a sigh of relief just yet. Businesses will need to continue to tread carefully, and to review the best measures to take to manage potential future turbulence.”

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