UK manufacturing shrinks significantly

According to the IHS Markit/CIPS Purchasing Managers’ Index (PMI), UK manufacturing fell to its lowest level since February 2013 in July. At 48.2 in July, the metric was down from 52.4 in June. This is only the second time since early 2013 that the PMI has fell to a sub-50.0 level. The move was reportedly the steepest decline since October 2012.

UK manufacturing employment decreased for the seventh straight month in July. Moreover, the rate of job loss was the second-sharpest for almost three-and-a-half years. Companies linked lower staffing levels to the contractions in output and new orders. There was also mention of natural wastage, restructuring, redundancies and outsourcing leading to job cuts.

Rob Dobson, senior economist at Markit said: “The final PMI came in at 48.2, down from the earlier flash print of 49.1. The pace of contraction was the fastest since early-2013 amid increasingly widespread reports that business activity has been adversely affected by the EU referendum. The drops in output, new orders and employment were all steeper than flash estimates….”

And added that policymakers should act quickly to avoid this trend becoming more permanent: “….The weakening order book trend and upswing in cost inflation point to further near-term pain for manufacturers. On that score, the weak numbers provide powerful arguments for swift policy action to avert the downturn becoming more embedded and help to hopefully play a part in restoring confidence and driving a swift recovery.”

David Noble, group chief executive officer at the Chartered Institute of Procurement & Supply commented, though steep the falls were not as bad as “the great recessions”: “Though these falls were not as marked as those seen during the Great Recession in 2007-2008, the drop was harsher than expected. The overall index was at its lowest since February 2013 and lower than reported by the recent flash PMI, which measured the effect of continuing uncertainty and the immediate impact of the EU referendum on the UK economy”.

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