September PMI survey indicates a persistently struggling manufacturing sector

The Purchasing Managers Index (PMI) for September has revealed that the British manufacturing sector is still struggling.

September PMI survey indicates a persistently struggling manufacturing sector

September’s figures reveal that despite increasing from August’s weakest level since May 2012, the September manufacturing purchasing managers’ survey is still poor. It shows activity contracting for a fifth successive month with output, new orders and employment all declining, and confidence low. The figures revealed that employment fell at the fastest rate since February 2013.

EY ITEM Club has said that last month’s figures reveal the manufacturing sector is being hampered by a soft UK economy and serious global economic and trade headwinds, as well as domestic political and Brexit uncertainties.

Domestic demand was also reported within the PMI to be particularly weak in September as new orders contracted at the second-fastest rate (after August since July 2012).

The investment goods sector was reported to be by far the weakest sector, indicating that major uncertainties (Brexit, domestic political and global economic) are weighing down particularly on companies’ investment plans. The consumer goods sector was the only one to see output rise in September, again highlighting the relative resilience of consumers.

There were signs of renewed stock building ahead of the 31st October Brexit deadline with stocks of purchases and input buying rising for the first time in recent months. However, this was not enough to offset the overall weakness.

EY ITEM Club has also said that the very real risk that a no-deal Brexit could yet occur on 31 October could well fuel near-term concerns over manufacturers supply chains and ability to meet future demand. This suggests appreciable stock building could yet occur over the next few weeks – although it is not entirely clear to what extent manufacturers and their customers still have stocks available after the first quarter build-up given that there has been some running down.

It also said that on the export front, manufacturers are being hampered by slower global growth. Global trade conflicts and tensions are also a concern for UK manufacturing exporters. The relative weakness in the pound could provide some help to UK manufacturing exporters, although sterling has come well off its August lows.

UK manufacturers could be impacted by EU companies switching supply chains away from the UK. This may be countered though by UK companies switching their supply chains from the EU to the UK.

If the UK does ultimately leave the EU with a “deal” at the end of October, manufacturers will hope that this reduces uncertainty, boosts confidence and lifts business demand for capital goods as well as consumer demand for big-ticket manufactured goods.

A further delay to Brexit past 31 October could risk prolonging uncertainty, weighing down on manufacturing activity and the economy.

Howard Archer, chief economic advisor to the EY ITEM Club, said: “The September purchasing managers’ survey points to the manufacturing sector still struggling markedly at the end of the third quarter. Furthermore, there are only limited signs of stock building.”

He added: “The manufacturing sector is suffering amid a lacklustre UK economy and serious global economic and trade headwinds, as well as domestic political and Brexit uncertainties.”

He also said: “Indeed, the purchasing managers survey pointed to manufacturing activity contracting for a fifth month running in September, although the rate of decline was at least the slowest since May. Specifically, the PMI could only edge up to 48.3 in September after falling to 47.4 in August (the lowest level since May 2012) from 48.0 in July and June, 49.4 in May, 53.1 in April and a 13-month high of 55.1 in March. September’s reading of 48.3 kept the PMI clearly below the 50.0 level which indicates unchanged activity.”

Andy Hall, head of corporate banking, central Scotland at Barclays, said: “It’s becoming a real challenge to get a clear picture of the health of UK manufacturing as, following the unwinding of months of record stockpiling, some parts of the sector have started to build up inventories again as the 31st October Brexit deadline looms large.

“The knock-on effect is that this activity is diverting valuable funds away from much-needed investment projects. To make matters worse, a growing global economic slowdown is increasingly casting a shadow over the sector coupled with reports that some EU-based clients are moving supply chains away from the UK. Manufacturers are a resilient bunch and I’m confident they will show their true mettle as the headwinds facing them show no sign of abating.”

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