Manufacturers see output, new orders and employment contract further at start of 2023

UK manufacturers faced a tough operating environment at the start of 2023, according to the S&P Global/CIPS UK Manufacturing Purchasing Managers’ Index.

Output and new orders fell further, leading to job losses for the fourth successive month. Weak demand, elevated price inflation, plus raw material and staff shortages all impacted production.

But there was better news too. The downturn showed further signs of easing, cost increases slowed and pressure on supply chains lessened.

Manufacturing output and new orders fell across the consumer, intermediate and investment goods industries in January. The steepest rates of decline in both variables were registered in the intermediate goods category.

Companies reported that production had been stymied by lower intakes of new work and disruptions caused by raw material and staff shortages.

The total volume of new business received fell for the eighth month running, reflecting weaker demand from both domestic and overseas clients, the latter affected by lower intakes of new work from the US, EMEA and Asia (especially China).

Ongoing port and Brexit issues also had an impact.

However, manufacturers maintained a positive outlook for the sector despite the ongoing downturn, fears about sustained price inflation and the possibility of a UK economic recession. Optimism rose to its highest level since April 2022, reflecting new projects and products, investment opportunities, proactive sales and marketing initiatives and hoped for revivals of domestic and overseas market conditions.

Almost 57 per cent of manufacturers reported that output would be higher a year from now.

Commenting on today’s PMI data, Fhaheen Khan, Senior Economist at Make UK, said: “The slightly rosier view will have little meaning for many manufacturers who face an uncertain future while sitting in the eye of a storm surrounded by high energy prices, a lack of workers and challenging export conditions. Despite some businesses pushing on, many manufacturers are paralysed by the lack of certainty in the economic climate, leaving them in recessionary conditions and on the fence about investment plans.

“On the upside, there are indications that the rate of inflation is slowing which will give businesses some breathing room. However, as manufacturers attempt to repair their margins there is growing evidence that, in some sectors, redundancies are increasing as falling demand starts to impact growth plans. Unless certainty improves across industry it is likely this downward path is set to continue for the rest of the year.”

The ongoing manufacturing downturn affected decisions relating to hirings, purchasing and stock holdings in January. Employment fell for the fourth successive month. Some firms cut jobs in response to lower production and weaker market demand, whereas others experienced difficulties in replacing leavers due to shortages of labour and required skill sets.

Capacity (on average) remained sufficient to cope with the demands of both new and existing contracts. This was highlighted by a further substantial decrease in work-inhand (but not yet completed) at UK factories.

Purchasing activity was reduced for the seventh successive month, with the rate of decline equalling November's twoand-a-half year record. Inventories of inputs subsequently fell for the fourth month running.

Stocks of finished products were also depleted for the first time since April 2022, linked to contract completions and the despatch of delayed orders.

Although global supply chains remained stretched at the start of 2023, UK manufacturers again indicated signs of these constraints lessening. Average vendor delivery times lengthened only mildly and to the least marked degree in three years. Manufacturers still face difficulties relating to supplier capacity, port delays, Brexit, the war in Ukraine and input shortages, however. Average input costs rose at the least marked rate for 27 months in January. However, there was a slight uptick in selling price inflation, mainly reflecting a marked acceleration at consumer goods producers.