UK manufacturing suffers “lacklustre” summer with confidence at 22-month low

The summer months saw a “lacklustre” performance of the UK’s manufacturing sector, with output and new orders slowing and the first contraction in export business in over two years.

That is according to IHS’s latest PMI report, which suggested manufacturing production rose at the slowest pace in 17 months in August, as growth of new order inflows eased to its weakest during its current 25-month sequence of expansion.

Although there were some reports of softer growth of new work from the domestic market, IHS reports the main drag was the trend in new export orders.

Foreign demand decreased for the first time since April 2016, despite the continued relative weakness of the sterling exchange rate. Some firms linked lower inflows of new work from abroad to the recent weaker pace of expansion of the world economy.

The report also shows that the slower performance of the sector transmitted through to the labour market, with the pace of manufacturing job creation slumping to “near stagnation.”

Although companies maintained a positive outlook, with 47 per cent expecting higher production in one year’s time, optimism dipped to a 22-month low in August. Business confidence was attributed to new capacity, expected growth of new export orders, planned investment and new product launches.

However, some panellists also noted concerns about the ongoing uncertainty about Brexit and the exchange rate.

Price inflationary pressures remained relatively strong in August, with both output charges and input costs rising at above survey average rates. Companies reported that purchase prices increased due to higher costs for metals, electronic components, energy and a range of other inputs. This was, in turn, passed on to clients in the form of increased selling prices.

Shortages of raw materials and supply-chain constraints also contributed to an increase in purchasing costs. Average vendor delivery times lengthened markedly in August, albeit to the lowest extent in four months. Some companies noted that transport delays had also had a negative impact on supplier delivery times.

“The performance of the UK manufacturing sector looked increasingly lacklustre in August,” said Rob Dobson, Director at IHS Markit, which compiles the survey.

“Although slower growth of domestic demand contributed to manufacturing’s weak performance, the main constraint was the trend in new export business. Foreign demand declined for the first time since April 2016, despite the weakness of sterling, amid reports of slower global economic growth and the increasingly uncertain trading environment. Inflows of new work from both domestic and overseas sources will need to strengthen if manufacturing is to show renewed vigour in the coming months.

“Looking ahead, manufacturers’ optimism about the outlook for the year ahead has been receding in recent months and is now at a 22-month low. While a hoped-for improvement in new export order growth and new product launches are forecast to stimulate future expansion, manufacturers are also expressing rising concerns about the uncertain backdrop of Brexit.”