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Uncertainty the cause for UK manufacturing decline

02 December 2019

The UK manufacturing downturn continued in November, as businesses responded to the delay to Brexit and a fresh injection of uncertainty from the forthcoming general election.

Output, new orders and employment all fell, while destocking activity resumed as firms depleted buffers built-up in advance of the postponed exit date. 

The headline seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) slipped to 48.9 in November, down 49.6 in October but above the earlier flash estimate of 48.3. The PMI has remained below the neutral mark of 50.0 for seven successive months. 

November saw a reduction in manufacturing output, with the rate of decline accelerating slightly over the month. Companies reported scaling back production in response to lower new order intakes. Efforts to reverse high stock holdings also contributed to the contraction, as did settling backlogs of work directly from inventories (further reducing the need to maintain production volumes). 

New orders fell for the seventh month in a row during November, reflecting tougher conditions in both domestic and overseas markets. Companies attributed this to destocking at clients following the delay to Brexit and the ongoing uncertainty surrounding the political, economic and global trade situations. The decline in new export orders was among the steepest registered over the past seven years. 

November saw manufacturing employment fall for the eighth straight month, with the pace of job losses the steepest since September 2012. Companies linked further cuts to cost reduction efforts, efficiencies, Brexit uncertainty, redundancies, natural wastage and staff restructuring. 

Sector data indicated that the downturn at investment goods producers remained severe, with production, new orders, new export business and employment all contracting at steeper rates than the other sub-industries. Output, new business and staffing levels at intermediate goods producers also fell. There were brighter signs from the consumer goods sector, which saw growth of both output and new orders. 

The delay to Brexit had a noticeable impact on stock holdings and purchasing activity during November. Finished goods inventories fell at the steepest rate in over two-and-a-half years, while input buying volumes fell to one of the greatest extents since early-2013. These contractions were a marked reversal from the solid increases seen in the lead-up to the October 31 exit date. 

November saw average selling prices increase for the forty-third month in a row. However, charge inflation remained relatively mild overall, with the rates over the past three months among the weakest during the current sequence of increase. Input costs decreased – albeit marginally – for the first time since March 2016, linked to lower global commodity prices and exchange rate effects.

Andrew Symms, Partner at DWF, comments on the IHS Markit/CIPS Manufacturing PMI data. He said: “The UK manufacturing PMI figures illustrate the impact of global trade tensions, Brexit uncertainty and an impending General Election that has resulted in the PMI to 48.9 in November from 49.6."

“The underlying data does not paint a rosy picture. Manufacturing production fell and new order inflows deteriorated from both domestic and overseas sources. Employment also fell for the eighth straight month in November. A lack of transparency caused by Brexit ambiguity is holding back investment. Manufacturers need to take positive steps to understand their supply chains, mitigate risks and ensure, to the best of their ability, that financing is available in case conditions deteriorate further.”

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