Brexit preparations help prop up ailing UK manufacturing sector

The UK manufacturing sector rallied slightly in September as Brexit preparations once again got underway, although the underlying outlook remained resolutely downbeat.

The IHS Markit CIPS UK manufacturing purchasing managers' index for September came in at a four-month high of 48.3, up from the six-year low of 47.4 reached in August. September’s figure also beat analyst predictions for around 47.0.

Stocks of purchases and input buying volumes rose for the time in recent months, as survey respondents reported restarting Brexit preparations. At the start of 2019, manufacturing activity surged as companies stockpiled goods and materials ahead of the first deadline for leaving the European Union.

However, the index remains well below the neutral mark of 50.0 and has been for five months - the longest sequence below 50.0 since mid-2009.

IHS Markit said: "Although the contraction was shallower than the prior survey month, levels of output, new orders, new export business and employment nonetheless fell further."

Consumer goods was the only category to see output rise in September, while production in intermediate goods "stagnated". The outlook for both was "lacklustre", the survey found.

Duncan Brook, group director at the Chartered Institute of Procurement and Supply, said: "As the Brexit October deadline came into view, the sector offered two opposing strategies to prepare for the UK’s departure. Where some companies were burning through the levels of materials, others began building stocks up again, fearful of an imminent and abrupt rupture in their supply chains.

"European clients became more resigned and made concrete plans to move away from UK suppliers and business closer to home seemed more reliable."

Rob Dobson, director at IHS Markit, said a "shroud of uncertainty" continued to weigh on manufacturers’ confidence, which was now at one of the lowest points in the survey’s history. "These headwinds all ensure that manufacturing will likely remain a drag on UK economic growth during the months ahead," he noted.

David Cheetham, chief market analyst at XTB, said: "On the face of it, the latest figures suggest an improvement for September, but if you dig a little deeper it is readily apparently that this is a misleading view, and underlying activity remains subdued at best."

Rupert Thompson, head of research at Kingswood, said: "The PMI still remains at levels implying a fall in manufacturing activity, and the pick-up in September in part just reflects a temporary build-up of stocks ahead of the 31 October Brexit deadline. A similar bounce ahead of the 31 March Brexit deadline proved short-lived."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The rise in the stocks of purchase of balance, to 53.6 from 49.8, accounted for half of the increase in the overall PMI.

"So far, however, the boost from stockpiling is much smaller than in the first quarter, when the stocks of purchases balance peaked at 66.2. This survey was conducted between 12 and 25 September, so it potentially captures the impact of legislation passed by MPs, which should rule out a no-deal Brexit.

"Setting aside the volatility created by Brexit, it is clear that underlying demand is very weak. So when the October Brexit deadline has passed without event, production looks set to fall sharply, mirroring the downturn in the eurozone."