Manufacturing takes biggest hit for seven years



UK manufacturing output tumbled at the fastest rate in seven years in August, as Brexit uncertainty and the global economic slowdown hit demand.

The IHS Markit/CIPS UK manufacturing purchasing managers’ index (PMI) fell to 47.4 in August, down from a reading of 48 in July.

 

A reading above 50 indicates growth.

IHS Markit, which compiles the monthly survey, said UK manufacturers were stifled by “political uncertainty” and “global trade tensions” during the month.

Output slumped for the month as the amount of new work fell at the fastest pace for seven years, while business optimism also slid to the lowest since it was first included in the survey in 2012.

New orders fell steeply across consumer goods industries, with manufacturers linking the slump to weaker domestic and global economic conditions, low market concerns and Brexit confidence.

The amount of export trade also fell at the fastest rate since 2012, with some respondents reporting that some EU-based clients were “routeing supply chains away from the UK” due to Brexit.

 

Furthermore, new work orders from the US and Asia also weakened during the period.

However, manufacturers said they still expect to see some output growth in the coming year, with 40% of firms forecasting expansion over the coming year.

Employment in the manufacturing sector also fell at the fastest rate for more than six years, as job cuts were driven by cost-saving initiatives ahead of Brexit.

Rob Dobson, director at IHS Markit, said: “Business conditions deteriorated to the greatest extent in seven years, as companies scaled back production in response to the steepest drop in new order intakes since mid-2012.

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“The outlook also weakened as the multiple headwinds buffeting the sector saw business optimism slump to a series-record low.

“The current high degree of market uncertainty, both at home and abroad, and currency volatility will need to reduce significantly if UK manufacturing is to make any positive strides towards recovery in the coming months.”

 

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Investment continued to peter out and heightened concerns about the UK’s political situation and the strength of the global economy acted as a drag on activity.

“Soured by the continuing intensely difficult conditions, the sector resorted to some job-shedding and increased their own prices as a last-ditch effort against renewed pressure from a weakening pound.”

Neil wilson of markets.com said: “The manufacturing PMI data is simply shocking. The headline PMI reading fell to 47.4, its weakest since July 2012. New orders declined at the fastest clip in seven years. And crucially confidence is on the floor, with manufacturers as pessimistic as they have ever been.

“It’s wrong to pin this all on Brexit. As the report authors make clear, the global economic slowdown is the primary cause of the decline, albeit there was some impact from supply chain reshoring as businesses seek to mitigate the impact of a no-deal Brexit. Uncertainty over the outcome of Brexit is certainly a drag on sentiment but we should be hopeful that this will be resolved presently.

“The data for the UK economy may well now get worse before it gets better. We need to assess the Services PMI on Wednesday for more clues about whether Q3 could herald a contraction. And as consistently stated, it also makes the next move for the Bank of England down, not up. Ultimately though the economic data this week will play second fiddle to what’s going on in Westminster.”

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