UK manufacturing update: Output and new orders drop in October

Manufacturing 45
Manufacturing 45

The UK manufacturing sector was weighed down by political and economic uncertainty in October, according to the latest purchasing managers index (PMI) data.


Output and new order inflows contracted, leading to further job losses. Firms also ramped up stock-building and purchasing activity in the lead-up to the October Brexit departure date.

The index, supplied by IHS Markit/CIPS, rose to 49.6 in October, up for the second successive month but remaining below the neutral 50.0 mark separating expansion from contraction.

The survey data was collected from 11-28 October – this was before the confirmation of the latest Brexit extension on the 28th and the passing of the Early Parliamentary General Election Bill by the UK House of Commons on the 29th.

The downturn in manufacturing production continued, although the rate of contraction slowed. Firms reported that weaker inflows of new business, especially from the domestic market, had led to a further scaling back of output. This was partly offset by manufacturers who raised production to build-up stocks in advance of the October Brexit deadline

The level of incoming new orders decreased for the sixth straight month in October, as ongoing uncertainties surrounding Brexit, the economy and the domestic political situation continued to weigh on demand. It was also despite a mild improvement in overseas sales.

New export business rose for the first time in seven months, as clients based in the EU brought forward planned purchases to before the (now delayed) Brexit departure date.

Job losses were seen for the seventh consecutive month in October, with the rate of decline among the steepest over the past decade. Lower employment reflected weak demand, softer client confidence, the non-replacement of leavers and staff redundancies.

There were also reports citing Brexit uncertainty, in some cases resulting in hiring freezes. A number of firms revisited their Brexit preparations during October, leading to higher levels of input purchasing and a build-up of safety stocks.

Growth in inventories of finished goods and purchases were at six-month highs, but remained below the survey-record rates reached during the first quarter.

Price pressures remained relatively contained at manufacturers during October. Input prices were unchanged over the month, the first time they have failed to rise in over three-and-a-half years. Output charge inflation was also among the weakest registered over a similar period.

October saw a mild improvement in business confidence to a three-month high, although the degree of optimism remained among the lowest since future expectations data were first collected in July 2012. Ongoing political, economic and Brexit uncertainties continued to weigh on manufacturers' sentiment.

Commenting on the data, Seamus Nevin, chief economist at Make UK, said: “Global markets have been having a rough time recently and, in that context, today’s disappointing news of further falls in output, new orders – especially from UK based customers - and more job losses should not be a surprise. Job cuts have happened for the seventh consecutive month with the rate of decline among the sharpest in a decade.

“Many manufacturers had some form of shutdown planned, while others were engaged in expensive stock building activities in preparation for potential no deal shocks to their supply chain. This together with the continued Brexit and now electoral uncertainty means there is no end in sight to the roadblocks industry is facing.”

Markit www.markiteconomics.com

Make UK www.makeuk.org

Company

Make UK

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