UK Manufacturing Decline Gathers Pace Amid Subdued Demand

UK manufacturing contraction worsened in December as output, new orders, and employment declined at faster rates due to subdued demand conditions both domestically and internationally impacted by price pressures and increased market volatility, final results of the purchasing managers’ survey by S&P Global showed Tuesday.

The S&P Global/Chartered Institute of Procurement & Supply manufacturing Purchasing Managers’ Index fell to a 31-month low of 45.3 in December from 46.5 in November. The index has remained below the neutral 50.0 mark for five successive months. Nonetheless, the score was above the flash estimate of 44.7.

Among components, output, new orders, employment and stocks of purchases all fell at accelerated rates, while vendor delivery time, which is an indicator of supply chain stress, lengthened to the least marked extent since January 2020.

Production at UK factories fell for the sixth successive month in December, linked to declining intakes of new work and disruption caused by stretched supply chains and material shortages.

As a result of weaker domestic and overseas demand, economic uncertainty, client destocking, and order deferrals, the number of new projects received declined.

Considering the export market, manufacturers reported lower demand from China, the US, mainland Europe and Ireland.

The fall in exports was mainly caused by weak global economic conditions along with shipping delays and higher costs amid Brexit-related issues, leading some EU clients to source products elsewhere.

Manufacturing employment fell for the third successive month and the rate of loss was the steepest since October 2020. During the month, excess capacity became more evident, with backlogs of work falling at the second-fastest rate in over a decade.

On the price front, the survey showed that the rates of increase in both output prices and input costs eased further. Average cost prices grew for the thirty-seventh consecutive month, albeit at the slowest pace since November 2020.

The overall increase in input costs largely reflects higher prices for chemicals, electronics, energy, food products, packaging, paper, plastics, and timber. In line with the easing in cost inflation, the rate of increase in selling prices dipped to a near two-year low.

“However, as this is mainly just the result of weakened demand reducing supply imbalances, it is unlikely to provide much real respite for manufacturers and their operating margins as they head into what looks like being a difficult 2023,” Rob Dobson, director at S&P Global Market Intelligence, said.

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