Manufacturing downturn deepens as UK PMI falls to lowest level since February 2013

The UK manufacturing sector continued to feel the reverberations of the unwinding of earlier pre-Brexit stockpiling activity during June. The already high stock levels at both manufacturers and their clients led to a scaling back of output and new order intakes, with demand from both domestic and export markets weakening.

The headline seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index® (PMI®) fell for the third consecutive month to its lowest level since February 2013. The PMI has posted below the no-change mark for two months in a row, the first back- to-back declines since early-2013.

But commenting on the latest survey results, Mike Thornton, head of manufacturing at accountants RSM said: "Although its worrying to see the PMI index slip again this month to its lowest level since February 2013; it isn’t surprising when you look at other leading manufacturing nations. Whether it’s Germany, the US, China or globally, we’ve started to see a slowdown as each market has entered a period of contraction.

"So, while manufacturers benefitted from a strong start to the year due to businesses and households pulling forward purchases ahead of the original Brexit deadline; we could now see slower growth, which could signal a period of recession across the sector globally.

"Although the decline in activity is being seen across the globe; in the UK, Brexit and the uncertainty it brings is impacting the industry regarding investment. Only last week, Vauxhall confirmed it would build the next generation of the Astra model in Ellesmere Port if we avoid a no deal Brexit – highlighting the real need for clarity to boost the sector."

Manufacturing production contracted at the fastest pace since October 2012. Output was lowered in response to reduced intakes of new business, which fell to the greatest extent for almost seven years. There were reports that high stock levels, ongoing Brexit uncertainty, the economic slowdown and rising competition all contributed to the decreases in new orders and production.

Demand from domestic and foreign markets weakened during June. New export orders declined for the third straight month and at a rate close to May's four-and-a-half year high. Softer global economic growth and continued Brexit uncertainty were the main factors underlying the latest decrease. There was specific mention of reduced intakes of new work from the US, mainland Europe and Australia.

The intermediate goods sector was the worst affected by the downturn, seeing the steepest drops in output and new orders of the industries covered by the survey. Investment goods also saw contractions, with the rate of decline in new orders especially marked. Although the consumer goods sector eked out further growth, rates of expansion in output and new work suffered sharp slowdowns.

Business optimism dipped to its third-lowest level in the series history during June. That said, a number of companies still maintain a positive outlook. Almost 44% forecast that output will be higher in one year's time, compared to only 14% expecting a contraction. Hopes of a recovery in the autos sector, new product launches, planned growth and higher exports were all mentioned as factors underlying confidence. Brexit uncertainty and softer global and domestic economic growth weighed on some firms' outlooks.

Employment fell for the third straight month in June, with job losses seen in the intermediate and investment goods sectors. Reduced staffing reflected lower workloads, economic slowdown, Brexit uncertainty and hiring freezes. Backlogs of work fell at one of the fastest rates for six-and- a-half years.

June saw a further increase in stocks of finished goods, although the rate of growth was down sharply from earlier in the year. Inventories of inputs meanwhile fell for the second month running, reflecting the depletion of Brexit stockpiles and reduced purchasing activity.