Monday 14 October 2019

Manufacturers remain concerned over Brexit as sector shrinks again

The latest PMI data, which is closely followed by economists, was better than expected but remains in negative territory.

Manufacturing PMIs for September were slightly better than August, but are still in decline (Anna Gowthorpe/PA)
Manufacturing PMIs for September were slightly better than August, but are still in decline (Anna Gowthorpe/PA)

By Simon Neville, PA City Editor

The UK manufacturing sector has shrunk for the fifth month in a row – the worst run since 2009, according to new figures.

The closely-followed IHS Markit/CIPS Purchasing Managers’ Index (PMI) hit 48.3 in September – anything below 50 is seen as a contraction – although this was a slight improvement on August’s six-year low of 47.4.

Some companies restarted their Brexit preparations ahead of a potential no-deal exit on October 31, but this was not enough to offset declines elsewhere as the US-China trade wars hit and the global slowdown in trade continued.

Rob Dobson, director at IHS Markit, which compiles the survey, said: “The UK manufacturing downturn continued in September, adding to signs that the sector may be sliding into recession.

“Output, new orders and employment all fell further as rising political, trade and economic uncertainties exacerbated concerns about Brexit.

“Some manufacturers noted increased inventory-building activity in preparation for the forthcoming exit date, but the impact of such Brexit-related stock-building was dwarfed by weakening demand for other customers, due in part to clients routeing supply chains away from the UK.”

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Manufacturing PMIs have been below 50, which shows a contraction, for six months. (IHS / PA)

There were reductions in new orders, with the investment goods sector the weakest performer – falling in output and new business.

The consumer goods sector was the only category to see a rise in output, as stockpiling ahead of Brexit by major retailers continues.

And although the rate of decline in new export business was much slower than in August, manufacturers were still reporting that clients were moving supply chains away from the UK due to Brexit uncertainty around future trading.

IHS Markit added that, as a result, job levels fell at the fastest rate since February 2013 across all parts of the manufacturing sector.

Business optimism remained at a subdued level in September, despite improving from the series-record low registered in August.

ING Economics, in a note responding to the results, pointed out that, although there may be a slight boost due to Brexit stockpiling, the levels from March 31 will not be reached.

It said: “Remember back in the first quarter, firms initiated significant stockpiling ahead of the original exit date. And, while much of this by definition involved higher European imports, this gave associated UK manufacturing a boost too.

“It’s unlikely, however, any boost will be on the same scale this time around. Inventory levels are still perceived to be fairly high, but also warehousing space is becoming more constrained given the close proximity to Black Friday and Christmas.”

Tuesday sees the PMIs for the construction sector, followed by the all-important services sector on Wednesday.

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