UK PMI reveals continuing manufacturing downturn

Posted on 2 Apr 2013 by Tim Brown

Manufacturing PMI figures for March 2013 have revealed a contraction in UK manufacturing for the second successive month, as companies scaled back production due to poor domestic and overseas demand.

The Markit/CIPS Purchasing Manager’s Index (PMI) edged higher to 48.3 in March, an improvement on February’s four-month low of 47.9 but insufficient to raise the headline index back above the neutral mark of 50.0.

UK manufacturers reported further declines in both production and new orders during the latest survey period. Lower output reported in the PMI was linked to tough market conditions and subdued client confidence. Ongoing bad weather was also highlighted as a contributing factor

Weakness was mainly centred on the intermediate goods sector, where output and new orders both contracted at accelerated rates. Production also fell in the investment goods sector, and stagnated at consumer goods producers. However, both sectors saw minor improvements in new order inflows.

Incoming new export orders contracted for the fifteenth month running in March. There were reports of weak demand from Europe and strong competition in the US and South Asia markets.

Job losses were reported for the eighth month running in March, reflecting company restructuring, redundancies and natural wastage. However, the extent of the reduction was moderate and slightly less marked than in February. Job cuts were mainly focused on larger manufacturers, as smaller firms reported little change to payroll numbers.

Rob Dobson, Senior Economist at survey compilers Markit: “The onus is now on the far larger service sector to prevent the UK from slipping into a triple-dip recession. The ongoing weakness of manufacturing and the hard to estimate impact of bad weather on first quarter growth suggest that this is still touch-and-go and that any expansion will be disappointing nonetheless.”

March data signalled a further increase in overall input costs, amid reports of higher prices for electricity, food products, gas and oil. There were also some reports of increased prices for imported raw materials and semi-finished products, in some cases linked to the ongoing weakness of sterling.

Part of the increase in costs was passed on to clients in the form of higher selling prices. Charges rose at a solid pace that was broadly in line with the long-run series average. There nonetheless remained some reports of strong competition and weak market conditions restricting selling price increases.

Contrary to the PMI figures, Mike Rigby, head of manufacturing at Barclays said that in his opinion manufacturers currently “give a bullish outlook”, particularly in the short term.

“Manufacturers are feeling more positive than they were 12 months ago and are looking to invest in their businesses, despite the clear external challenges which remain,” he said.

Lee Hopley of the manufacturers’ organisation EEF said “Continued weakness in the PMI is disappointing overall, but of particular concern is another month of falling export demand. While manufacturers have made some good gains in non-EU markets over the past couple of years, the on-going drag on orders from the eurozone is still significant and likely to impact on prospects over the coming months.”