UK manufacturing sector sees worst downturn since first Covid lockdown

The UK manufacturing sector suffered its worst downturn in August since May 2020, according to a survey released on Thursday.

The S&P Global/CIPS manufacturing purchasing managers’ index fell to a 27-month low of 47.3 from 52.1 in July, although it was above the flash estimate of 46.0. This marked the first reading below the 50 mark that separates contraction from expansion since May 2020, when the country was in its first Covid lockdown.

The survey showed that output and new orders contracted at the fastest rates since that first lockdown, as inflows from domestic and export markets slumped.

Rob Dobson, director at S&P Global Market Intelligence, said: "There were reports of clients postponing, rescheduling or cancelling agreements due to increased economic uncertainties, recession warnings, rising prices and component shortages, while port congestion and Brexit complications constrained export opportunities.

"The deepening downturn also impacted trends in employment, purchasing and business optimism. The rate of job creation came to a near-standstill, while input buying was cut back sharply - hitting demand at suppliers. Business optimism sank to a 28-month low as companies noted that the horizon was darkening amid concerns about recession and the impact of the cost-of-living crisis.

"There was better news on prices, however. Although still elevated, rates of input cost and selling price inflation both eased sharply, which could take some considerable pressure off consumer price inflation in the coming months, albeit with energy prices remaining a key concern and area of great uncertainty as we head into the autumn."

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said the PMI suggests that a recession is developing in the manufacturing sector.

She noted that the new orders index dropped to a 27-month low of 43.9, on the back of weakening demand both domestically and externally, while the new export orders index dropped to 42.7 from 46.4.

"Firms also appear to be carrying excessive inventory for the level of demand; the orders-to-inventory fell further in August and suggests that the output index will remain weak in the months ahead," she said. "At the same time, the depletion of backlogs of work at the fastest pace since June 2020 also suggests production will fall further. It is no wonder, therefore, that manufacturers are the least confident about the 12-month outlook since April 2020."