Latest PMI results produce a chorus of industry warnings
4 Sep 2023
Manufacturers have reacted with gloom to the latest CIPS UK manufacturing purchasing managers’ index (PMI) which has continued its downward trend to a level of 43.
National head of manufacturing at RSM UK Mike Thornton said the figures were indicative of the sector performing more weakly than the economy as a whole.
“Looking more closely at the data, the backlogs of work index fell sharply to 34, and the new orders index fell below 40 to 38.6 for the first time since December 2022, both clear signs that the pipeline of activity has dried up following the massive surge in production after the pandemic,” he said.
“ As manufacturers work through their remaining backlogs without signs of replenishment, businesses will continue to struggle to protect their margins. In addition, manufacturers have been hit particularly hard by the surge in interest rates over the last 12 months as they need capital investment in order to grow, reinforcing the urgent need for an industrial strategy.”
On a positive note however he added that the fall in input prices index to 42.7 suggested inflationary pressures were decreasing, while the sector would benefit from real wage increases and easing of energy costs.
At manufacturers’ association Make UK senior economist Fhaheen Khan warned inflation and interest rates were exerting a double pressure.
“Today’s data indicates manufacturing production has hit the brakes as slowing demand takes hold of business activity. It is no longer just high inflation that is eroding spending power, but combined with higher interest rates depleting our willingness to spend has made for an unpalatable cocktail,” warned Khan.
“Manufacturers are now acting by cutting jobs and investment as the backlog of work starts to dry leading to an inevitable downturn in economic activity soon. Policy makers and rate setters will need to be wary of the cost of higher unemployment given prices remain elevated for many consumers and the loss of incomes will hurt many if we take this too far.”
With fears of yet another Bank of England interest rate rise, Chris Barlow, partner at MHA, cautioned that another jump would further damage confidence within the manufacturing sector:
“A September rate increase could harm manufacturers already grappling with successive interest rate rises, high energy costs, recent corporation tax increases and reductions in the rates available for claiming R&D tax credits, despite recent more positive sector trends. Manufacturing, which makes up 9.4% of GDP, requires sustained government support to avert setbacks. Assistance is essential to maintain momentum and economic alignment.
He called for a “forward-looking industrial strategy so many have asked for”, saying the upcoming autumn statement should include measures such as lowering the 25% corporation tax rate and reversing R&D cuts, especially for SMEs.
“Furthermore, to meet the UK’s environmental ambitions, properly incentivising sustainable practices is crucial. Industry leaders burdened by costs must be aided in integrating green solutions without financial strain. A comprehensive set of green incentives could play a pivotal role in facilitating the transition towards a net-zero future," warned Barlow.
