UK manufacturing contracted for the third month in a row in September as companies cut production due to a fourth consecutive month of declining new orders.
The S&P Global/CIPS UK Manufacturing PMI scored 48.4 in September, though this was an improvement on the 47.3 score the month before. Any score below 50 indicates a contraction.
August’s score had been the lowest for 27 months.
Exports decline
The drop in September had been anticipated.
The IOE&IT Daily Update reported figures from another flash PMI released just as the mini-budget was being announced in September that suggested the UK would face a continued decline in business activity.
September’s report notes new export business also contracted at the quickest pace since May 2020, with reports of lower demand from the US, the EU and China.
Not just the UK
The Telegraph reports that activity across the eurozone also fell last month, with the S&P’s global eurozone PMI falling to a 27-month low of 48.4 in September, down from 49.6 the previous month.
As well as a weak global market, businesses face rising input costs due to high rates of inflation, high transportation costs, and longer lead times resulting in cancelled orders.
Industry ‘in the doldrums’
Rob Dobson, director at S&P Global Market Intelligence, said the downturn in UK manufacturing would be a drag on GDP, with the industrial sector “likely to remain in the doldrums during the coming quarter to add to deepening recession risks”.
He added: “Factories are reporting tough market conditions both at home and abroad. Disappointingly, exports continue to fall despite the more competitive exchange rate.”
Headwinds
Simon Jonsson, UK head of industrial products at KPMG, reminded Yahoo News that the twelve-month run of improving growth in manufacturing output came to an end over the summer.
“But the economic headwinds of the ongoing squeeze on consumer demand, inflation, and the early signs of recession, have all combined to reduce confidence. This situation will not be improved by the recent volatility in capital markets,” he said.
Sterling weakness
The pound has been weakening compared to the dollar across the year and while in theory a weak pound should boost demand for British exports, currency falls in 2008 and 2016 had little effect, according to Reuters.
Sterling weakness also raises the cost of imports of fuel and raw materials - which are often priced in dollars - and the PMI showed that input cost inflation rose for the first time in five months, partly due to currency volatility.