The manufacturing industry hit a 25-month low in July, according to the latest S&P Global/CIPS UK Manufacturing PMI®.
Key results from the July 2022 UK manufacturing PMI:
- Manufacturing PMI falls to 25-month low
- Decline in production in the consumer and intermediate goods industries
- Job creation picks up as companies address staff shortages
For the first time in more than two years, Britain’s manufacturing sector saw output contract in July as new orders and exports continued to decline. The seasonally adjusted S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index® (PMI®) fell to 52.1 in July from 52.8 in June. The last contraction in manufacturing production dates back to May 2020.
Manufacturers attributed the drop in production to reduced intake of new work and lower market demand, as well as component supply difficulties and transportation delays. The consumer goods and intermediate goods sub-industries saw their production decline the most. The current cost of living crisis, customer uncertainty and the recent heatwave have all been cited as factors behind lower domestic demand and new orders.
However, despite falling orders and production, manufacturing organizations have managed to address staff shortages that have crippled the sector. Indeed, employment accelerated to a three-month high in July as companies increased their workforces to address staffing shortages and support their strategic growth plans.
Finally, it appears that cost inflation at manufacturers and supply chain pressures have both passed their respective peaks. Yet this reality did little to boost business optimism, with levels remaining unchanged from June’s two-year low.
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Commenting on the latest survey results, Rob Dobson, Director of S&P Global Market Intelligence, said: “The UK manufacturing sector went into reverse at the start of the third quarter. Output contracted for the first time since May 2020 as new orders suffered the first consecutive monthly declines in two years. Growing market uncertainty, the cost of living crisis, the war in Ukraine, lingering supply issues and inflationary pressures are all hitting demand for goods at the same time, while lingering post-Brexit issues and the he darkening global economic environment is hampering exports. “With the Bank of England implementing further interest rate hikes to fight inflation, the outlook is plagued with downside risks. is hardly surprising.” It wasn’t all bad news though, with further signs that cost inflation among manufacturers and supply pressures have already passed their respective highs. Accelerating job growth as companies deal with staff shortages has also been a plus, although it could be at risk if the downturn takes hold in the coming months.
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, added: “The July results may have shown a marginal reduction in manufacturing output, but its significance as the first fall since May 2020 should make business leaders and policymakers sit up and take notice. “Production in the consumer goods sector has contracted along with new orders and there are signs that this trend will continue into the autumn months. A reduction in the level of new orders from domestic customers clearly showed that the pressure of the rising cost of living for basics such as fuel and energy made consumers think twice about non-essential purchases.” The appetite for overseas orders was also affected by the challenges of global economic growth, supply disruptions, transportation and customs inefficiencies at ports where order levels from the United States and China have plummeted. Even a further easing of supply chain pressures was not enough, as delivery times continued to be a test of endurance at historically high levels. “The cost inflation rate also eased slightly, but did nothing to lift the mood of manufacturers with optimism unchanged from last month’s low levels.”
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