Economy

UK factory output slumps at fastest rate since May 2020 | Manufacturing data

UK factory production slumped in August at the fastest rate since the early Covid-19 pandemic lockdown month of May 2020 after manufacturers suffered a sharp reversal in new orders from domestic and overseas customers.

Analysts said a manufacturing recession had begun after firms reported that clients had “postponed, rescheduled or cancelled agreements” in response to economic uncertainties, soaring inflation and component shortages.

The 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 figure below 50 signifies a contraction in activity.

The output index plunged to 42.7 from 48.9 in July and new orders followed the same pattern, dropping to 43.9. Export orders suffered an even larger contraction, falling to 42.7 in August from 46.4 in July.

Backlogs of work, which have kept many firms going through the spring and early summer, also fell away in August, adding to the sense of gloom in the industry.

Samuel Tombs, the chief UK economist at the consultancy Pantheon Macroeconomics, said: “The PMI suggests that a recession is developing in the manufacturing sector.”

He said the tendency to stockpile components and raw materials over the last year in response to supply chain blockages had also left firms vulnerable to being left with unsold stock during a downturn.

James Brougham, a senior economist at the manufacturers’ lobby group Make UK, said the PMI showed the trend was “recessionary” after the worst performance in more than two years.

“Industry is finding maintaining output levels a significant challenge, especially when average input prices are a whopping 22.6% higher now than they were at the same time last year.

“One enduring pillar of hope for UK manufacturing, high demand for its goods in recent times, has fallen now too, as both domestic and foreign customers batten down the hatches for what is shaping up to be a winter of discontent.”

He described the data as a significant, and perhaps the last, “warning shot” for government to follow other European countries and intervene “to mitigate the worst of the economic damage to the industry’s fabric”.

Tombs said: “It is no wonder that manufacturers are the least confident about the 12-month outlook since April 2020.”

UK manufacturers have largely missed out on the pandemic-induced boom in demand for goods, leaving them in a worse financial position going into the energy crisis than many overseas rivals.

While manufacturers in the US, China, Japan and much of continental Europe have secured large increases in exports, trade between UK firms and with overseas buyers has remained flat.

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