UK Manufacturing Downturn Continues as New Orders Dwindle Amid Market Uncertainty

Vehicles are checked at the Jaguar Land Rover factory in Solihull, England, on March 1, 2017. (Leon Neal/Getty Images)

The UK’s manufacturing sector has been tipped into a third monthly contraction as new order intakes decline, an influential survey has found.

The S&P Global/CIPS UK Manufacturing PMI scored 48.4 in September, a slight recovery from 47.3 in August, a 27-month low. Anything below 50 is considered to show that the sector is shrinking.

Although the rate of contraction in output eased slightly since the previous month, it nonetheless remained substantial overall, S&P Global said in its latest report.

Manufacturing companies cut back on production in response to declining new order intakes. Some expected orders were postponed or cancelled, due to factors such as rising uncertainty, inflationary pressure, and the cost-of-living crisis, the report said.

Compared with the domestic market, firms faced even tougher conditions in export markets. September saw new export business contract at the quickest pace since May 2020, with reports of lower demand from the United States, the EU, and China.

Manufacturers faced weak global market conditions, rising uncertainty, high transportation costs reducing competitiveness, and longer lead times partly caused by Brexit-related paperwork, leading to an increase in cancelled orders, said S&P Global.

“Manufacturing businesses continued to feel an autumnal chill in September as declining sales, higher costs, and a depressed marketplace pulled the sector down into contraction for a third month in a row,” said John Glen, chief economist at the Chartered Institute of Procurement & Supply (CIPS).

“Supply chain managers were buying less as customers either failed to place orders or cancelled work in hand.”

Inflation Bites

Meanwhile, the rates of inflation for input costs and output charges have both been accelerating.

In recent months, British businesses and households have been wrestling with rising energy costs, a jump in borrowing costs, and a volatile currency which struck a record low against the U.S. dollar on Sept. 26.

While in theory a weak pound should boost demand for British exports by making them cheaper for overseas buyers, it also raises the cost of imports of fuel and raw materials, which are often priced in dollars.

Rob Dobson, director at S&P Global Market Intelligence, said, “Disappointingly, exports continue to fall despite the more competitive exchange rate.”

“There was also less positive news on the price front, with rates of inflation in input costs and selling prices both picking up in September, linked in part to import costs rising due to the weaker pound,” he added.

PA Media and Reuters contributed to this report.