UK Manufacturing PMI: Industry slips back into decline following promising March

Posted on 1 May 2024 by James Devonshire

The UK manufacturing industry slipped back into a decline in April, with output and new orders both contracting, according to the latest S&P Global UK Manufacturing PMI®.

April 2024 UK Manufacturing PMI key findings:

  • Manufacturing PMI at 49.1 in April
  • Input price inflation at 14-month high
  • Business optimism remains positive

Uncertain market conditions, client destocking and the ongoing crisis in the Red Sea were all cited as reasons why industry didn’t continue its upward trajectory in April. Indeed, four of the five PMI constituents (output, new orders, employment and stocks of purchases) registered contractions.

The seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) was 49.1 in April, down from March’s 20-month high of 50.3, yet above the earlier flash estimate of 48.7.

April saw weak demand, cost control initiatives, supplychain disruptions and a preference for reduced stock holdings influence levels of purchasing activity and inventory holdings.

Nevertheless, manufacturers remain positive, with over half of companies (52%) forecast that output would increase over the coming year, compared to only 8% anticipating a decline. Optimism was linked to hopes for a revival in demand, new product launches, efficiency gains and an improvement in market conditions.

Commenting on the latest survey results, Rob Dobson, Director at S&P Global Market Intelligence, said: “The UK manufacturing sector suffered a renewed downturn in April, as output and new orders contracted following short-lived rebounds in March. The sector is still besieged by weak market confidence, client destocking and disruptions caused by the ongoing Red Sea crisis, all of which are contributing to reduced inflows of new work from domestic and overseas customers, with specific reports of difficulty securing new contract wins from Europe, the US and Asia.

“The downturn is also sustaining cost caution at manufacturers, leading to lower employment, stock holdings and cutbacks in purchasing activity. The news on the prices front is also worrisome for those looking for a sustainable path back to target (consumer price) inflation, with cost pressures growing in industry and feeding through to higher selling prices at the factory gate.”

Industry reactions to April Manufacturing PMI

Maddie Walker, Industry X lead for Accenture in the UK, said: “News that manufacturing production has declined comes as a significant blow to the industry, particularly in the wake of last month’s brief return to growth. This confirms the doubts raised by many that March was an outlier as opposed to the beginning of an upward trend.

“Clear driving forces for this outcome are declining new orders and persistent supply chain disruption faced by the sector throughout the month. However, despite ongoing inflationary pressures, coupled with lower output levels resulting from uncertain market conditions, business optimism levels remained positive. As the UK economy’s recovery from last year’s recession continues to gain momentum, there is hope that the manufacturing sector will soon follow suit again.

“This dip serves as a reminder that renewed efforts must be made to ensure the sector doesn’t fall back into another lengthy period of decline. Critical investment that plays into the UK’s strengths and aligns with national priorities is key to future-proofing the sector and promoting long-term growth.”

Glynn Bellamy, UK Head of Industrial Products for KPMG, said: “Manufacturing recovery stagnated in April, as production levels and new orders fell back across the industry as a whole. While manufacturers that are less exposed to the consumer downturn continue to fare better, all of the sector remains exposed to stubborn inflation. This is being driven by higher input prices from the likes of logistics and raw materials costs. The Bank of England will undoubtedly be keeping a close eye on this as part of its interest rate setting decisions.”

Boudewijn Driedonks, partner at McKinsey & Company, said: “The UK’s manufacturing sector experienced a modest pullback in April, breaking the trend of recovery and slipping back into contraction. Growth was hampered by lower output levels linked to weaker market conditions overall, which is also showing in a weaker labour market. The drop down to 49.1 is still only slightly below the magic 50 mark. The next few months will tell us if this flatlining is a true reversal of the recent recovery trend or not.

“Zooming out to the wider economy, we are seeing a story of two halves. The service sector remains strong, and April saw service sector firms accelerate growth to the strongest level for 11 months. This month’s PMI again emphasises that manufacturing is the weak link in the economy. There are also signs of possible price pressures building for the future – wage bills are growing, and input prices are increasing.

“As we look to the second half of the year, navigating a return to growth is not easy. The last mile of getting persistent inflation under control is proving tricky across western countries. The challenge for manufacturers will be applying acupuncture to find domestic and export growth pockets, seeking to be competitive on the international stage while managing margins.”

Michael McGowan, Managing Director of Foreign Exchange at Bibby Financial Services, said: “After a long awaited return to growth last month, today’s Manufacturing PMI signals caution for the sector as a whole.

“Uncertainty follows the introduction of further post-Brexit border controls, which came into force yesterday, tightening rules on plant and animal products coming from the EU. With the EU making up 50% of total imports coming into the UK, the manufacturing sector will rely on their European suppliers being fully prepared to adapt – but a smooth transition is far from certain. For smaller businesses in particular, suppliers lowering or cutting exports could be make or break.

“Between this latest Brexit road-bump, the ongoing impact of inflation and the red sea crisis, it’s clear that threats to the manufacturing sector persist. Now manufacturers need reassurance from a government that will support them on the path to growth.”

Caroline Litchfield, partner and Head of Manufacturing and Supply Chain sector at Brabners, said: “Hopes of a recovery in the UK’s manufacturing sector will need to be put on ice for now, as March’s lift in activity proved an anomaly. Indeed, supply-side barriers including delays to raw material deliveries and high input cost rumble on. And while domestic demand has picked up, geopolitical instability has fractured supply chains globally – most notably with disruptions in the Red Sea causing congestion at Mediterranean ports – to restrict international orders.

“The wider economy saw further turbulence last week as many mortgage lenders raised their rates against the expectations of analysts, which undoubtedly creates greater uncertainty for manufacturers who had anticipated an easing of conditions. While interest rates are expected to start falling this summer, consumers continuing to see their disposable income eaten up by essential costs will do little for demand.”

Cara Haffey, Manufacturing and Automotive lead at PwC UK, said: “April’s PMI reading of 49.1 was a slight drop from the 20-month high the manufacturing sector posted in March. Issues relating to supply chain disruption and market uncertainty continue to impact trading conditions, though the month-on-month drop is slight. The road to recovery and growth for manufacturers was never going to be simple, so rather than feeling acute concern – many in the sector will view today’s news as largely normal and somewhat expected, given the ongoing fragility in market conditions.

“Exporters continue to face challenging conditions, with the PMI noting the downturn in new export business extended itself to the 27th consecutive month. Having already been in decline for over two years, more recent geopolitical conflicts disrupting key global trade routes have added another layer of difficulty to what was already a complex trading environment.

“With 52% of manufacturers forecasting their output to increase over the next 12 months, resilience is clearly on display. The sector continues to navigate day-to-day disruption in running costs, materials and shipping and will be hoping for better news on the horizon – not least with the Bank of England’s next MPC decision on interest rates on May 9.”

Ginni Cooper, partner at MHA, said: “The economic environment remains challenging, and there continue to be external forces outside the control of the sector which are putting real pressure on manufacturing businesses, and which is dampening confidence.

“We’re hearing from our clients that the increase in the national living wage is a real pinch point. This, coupled with successive price rises in the cost of raw materials, has impacted the bottom line of many manufacturing businesses who often operate with slim profit margins.

“In addition, the changing mood music on when interest rates will be cut and the possibility this may not be until after the summer is holding back companies from investing in growth.

“The squeeze on cashflow means manufacturers are very much still in survival mode and are less focused on their efforts to be more sustainable despite the potential attraction to customers.”

Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index, Mike Thornton, national head of manufacturing at RSM UK, said: “The manufacturing PMI in April saw a slight fall to 49.1, following a steady upward trend in Q1 2024 which culminated with last month’s rise to above 50 – the highest level in 20 months. Although April’s headline PMI has fallen below 50, this is likely to be a slight monthly blip, rather than a major reversal on progress. In addition, the sector has been starting to show signs of stabilisation in recent months and is in a much stronger position than this time last year, having been in contraction for most of 2023.

“However, while manufacturers are operating in a less volatile economy, input prices are starting to rise again, measured at 54.8 in April, the highest level since February 2023. As an energy intensive industry, the worldwide squeeze on energy supplies due to the war in Ukraine and conflict in the Middle East will add further cost demands. Similarly, the 10% increase in national minimum wage will also have impacted businesses. Against these pressures, it was reassuring to observe an uptick in output prices to 53.1, suggesting that manufacturers have almost immediately passed these increases to customers.”

For more articles like this, visit our Leadership channel