UK manufacturing output drops for first time since May 2020

UK manufacturing output fell in July for the first time since May 2020, according to a survey released on Friday.

The S&P Global/CIPS manufacturing output index declined to 49.7 from 50.3 in June, coming in below the 50.0 mark that separates contraction from expansion. Manufacturers cited a lack of new work to replace completed orders amid subdued client confidence and weaker global economic conditions.

The manufacturing purchasing managers’ index dipped to 52.2 in July from 52.8 the month before, hitting a 25-month low.

Meanwhile, the services PMI business activity index fell to 53.3 from 54.3 and the composite output index - which measures activity in both services and manufacturing - declined to 52.8 from 53.7.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: "UK economic growth slowed to a crawl in July, registering the slowest expansion since the lockdowns of early-2021. Although not yet in decline, with pent-up demand for vehicles and consumer-oriented services such as travel and tourism helping to sustain growth in July, the PMI is now at a level consistent with just 0.2% GDP growth.

"Forward-looking indicators suggest worse is to come. Manufacturing order books are now deteriorating for the first time in one and a half years as inflows of new work are insufficient to keep workforces busy, which is usually a precursor to output and jobs being cut in coming months. Raw material buying has already slumped and hiring has slowed as companies reassess their requirements for the coming months in the face of worsening demand conditions."

Williamson said the concern is that rising interest rates will cause demand growth to weaken further in the coming months. "To be hiking interest rates at a time of such weak business growth is unprecedented over the past quarter-century of survey history," he said.