UK manufacturing had another dismal month, with the sector contracting to a six month low in June despite signs of price and supply chain pressures easing, according to recent data.
The seasonally adjusted S&P Global / CIPS UK Manufacturing Purchasing Managers’ Index (PMI) fell to a six-month low of 46.5 in June, down from 47.1 in May.
Scores below 50 signal a contraction while those above 50 signal growth in the sector. The PMI has contracted in each of the past 11 months.
Outlook was also downbeat for manufacturing output at the end of the second quarter. Although 53% of manufacturers still forecast growth over the coming 12 months, the overall degree of optimism fell to a six-month low.
Dr John Glen, chief economist at the Chartered Institute of Procurement & Supply, said that the downturn in the manufacturing sector gathered pace in June with the PMI at its lowest level since December and has now signalled contraction in every month for almost a year.
Glen said: “A combination of depressed sales from domestic and overseas markets and strong price pressures hanging around has resulted in levels of new business reducing for the third month in a row. Brexit-related controls impacted on levels of new orders from the EU but there were signs of some pick up in the Middle East as economies around the world showed some improvement at varying speeds.”
He added: “However, generally, there is little in this month’s figures to encourage the industry. As business operations shrank to fit market opportunities, manufacturers reduced headcounts for the ninth month in a row with non replacement of leavers and some job shedding.
Domestic and overseas demand for UK manufacturing was dull in June, the survey showed, with a drop in new order intakes for the third success month. The rate of contraction accelerated to its fastest since January.
“The UK has avoided recession by the skin of its teeth according to official government data, but manufacturers are reducing stock levels and buying and investing less just to keep their heads above water as optimism recorded a six-month low amongst businesses about the sector’s chances in the next 12 months,” Glen said.
Employment in manufacturing also took a hit on the back of the downturns in output and new orders, falling for the ninth month in a row, with the rate of reduction the sharpest since March. Job losses also reflected weaker demand, redundancies and cost management initiatives.
Chris Barlow, partner at accountancy firm, MHA, said that the Bank of England’s (BofE) decision to raise interest rates and a lack of industrial strategy was stifling a sector in desperate need of a confidence boost:
He warned that the recent interest rate increase could push Britain toward recession and said that the threat of recession has crippled manufacturers’ investment plans, with many discussing or actively reducing future investment.
Barlow said: “The rise has fallen during a particularly challenging time for manufacturers, with the recent drop in R&D tax relief and overwhelming pressure to increase wages starting to bite. With inflation keeping the vast majority of sector costs at record levels it seems counterintuitive for the government to continue driving down a path that has shown no signs of working so far.”
He added: “Given the plethora of reasons dampening sector confidence, the introduction of a long term manufacturing strategy has never been more urgent. The government must grasp the opportunity to provide manufacturers with a non-political, long term strategy that will super-charge the sector in the years to come and incentivise greater investment in operations, automation and green technology.”
