UK factory output fell in August at the fastest pace since the first month of the Covid-19 pandemic lockdown in May 2020, after manufacturers suffered a strong reversal of new orders from domestic customers and foreigners
Analysts said a manufacturing downturn had begun after companies reported that customers had “postponed, rescheduled or canceled deals” in response to economic uncertainties, rising inflation and component shortages.
Survey compiler S&P Global said its Cips UK manufacturing purchasing managers’ index (PMI) fell to 47.3 in August, down from 52.1 in July, where a below 50 means a contraction in activity.
The production index fell to 42.7 from 48.9 in July and new orders followed the same pattern, falling to 43.9. Export orders suffered an even bigger contraction, falling to 42.7 in August from 46.4 in July.
Job backlogs, which have held many companies through the spring and early summer, also narrowed in August, adding to the industry’s sense of gloom.
Samuel Tombs, UK chief economist at consultancy Pantheon Macroeconomics, said: “The PMI suggests a recession is developing in the manufacturing sector.”
He said the tendency to stockpile components and raw materials over the past year in response to supply chain bottlenecks had also left companies vulnerable to being left with unsold stock during a downturn.
James Brougham, senior economist at manufacturers’ lobby group Make UK, said the PMI showed the trend was “recessionary” after the worst performance in more than two years.
“The industry is finding maintaining production levels a significant challenge, especially when average input prices are 22.6% higher now than at the same time last year.
“An enduring pillar of hope for UK manufacturing, the strong demand for its products of late, has also fallen as both domestic and overseas customers batten down the hatches in what looks to be a winter of discontent “.
He described the data as a significant, and perhaps final, “warning signal” for the government to follow other European countries and intervene “to mitigate the worst of the economic damage to the fabric of the industry.”
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Tombs said: “It is not surprising that manufacturers are less confident in the 12-month outlook from April 2020.”
UK manufacturers have largely missed out on the pandemic-induced boom in demand for goods, leaving them in a worse financial position in the face of the energy crisis than many overseas rivals.
While manufacturers in the US, China, Japan and much of continental Europe have achieved large increases in exports, trade between UK companies and with overseas buyers has remained flat.