UK Manufacturing Sector Plunges Deeper Into Crisis

By City A.M - Jan 03, 2024, 

• The UK's manufacturing PMI fell to 46.2 in December, indicating a contraction in the sector.
• 
  
• Declines were driven by reduced new orders both domestically and from key trading partners like the US and Europe.
• 
  
• Business optimism dropped significantly, and the sector faced job losses and minimal increases in selling prices.

The UK’s manufacturing sector fell deeper into contraction in December, while business optimism fell to its lowest level in a year, a closely watched survey suggested.

S&P’s global UK manufacturing Purchasing Managers’ Index (PMI) slipped back to 46.2 in December, lower than the 46.4 recorded in the ‘flash’ estimate in mid-December.

December’s reading also marked a downturn from November’s reading of 47.2, which was a seven-month high. The 50-mark separates growth from contraction.

The deterioration in the manufacturing sector reflected weaker demand, both at home and abroad.

New business placed with UK manufacturers fell for the ninth month in a row with companies reporting that the weak economic backdrop was impacting demand. Poor weather conditions also contributed to the decline.

Source: S&P

Demand from key trading partners, like the US and Europe, saw a “further retrenchment” in new export business, which declined for the twenty-third consecutive month.

“UK manufacturing output contracted at an increased rate at the end of 2023,” Rob Dobson, Director at S&P Global Market Intelligence, said.

“The demand backdrop remains frosty, with new orders sinking further as conditions remain tough in both the domestic market and in key export markets, notably the EU,” he continued.

Things look unlikely to get better any time soon. Business optimism dropped to its lowest level in a year, reflecting a weak economy, high interest rates and client closures.

“With concerns about high interest rates and the cost-of-living crisis hurting demand, the outlook for manufacturers in the months ahead remains decidedly gloomy,” Dobson said.

With demand low and optimism fading, December saw further job losses in the manufacturing sector. This was linked to efficiency gains and hiring freezes, the report noted.

Selling prices rose for the second straight month, although only slightly. “Where an increase was reported, this was mainly due to efforts to protect margins,” the report said.

By City AM