London, January 4, 2024 — The United Kingdom’s manufacturing sector concluded 2023 on a fragile note, experiencing an accelerated downturn in production volumes, according to the latest seasonally adjusted S&P Global UK Manufacturing Purchasing Managers’ Index (PMI).
The decline in output volumes in December was attributed to overstocking at client sites and stricter inventory policies at manufacturing facilities. Despite efforts to clear backlogs of work, the support provided proved less effective than in previous months.
The PMI retreated to 46.2 in December, following a brief uptick to 47.2 in November, marking the 17th consecutive month below the neutral 50.0 mark.
All five PMI sub-indices, covering new orders, output, employment, stocks of purchases, and suppliers’ delivery times, indicated a continuing deterioration in operating conditions.
Manufacturing production saw its tenth consecutive monthly decline in December, driven by downturns in consumer and intermediate goods sub-industries, offsetting expansion in the investment goods category.
Output reduction was a response to weaker intakes of new business, reduced overseas demand, and efforts to trim stocks at both manufacturers and their clients.
New business placed with UK manufacturers declined for the ninth consecutive month in December, attributed to a weak economic backdrop, delayed client orders, and adverse weather conditions. However, the rate of contraction eased for the fourth consecutive month to its slowest since May.
Key trading partners, including the US, mainland China, mainland Europe, and Canada, experienced lower demand, leading to a further retrenchment in new export business in December.
Job losses were recorded for the 15th consecutive month in December, linked to redundancies, efficiency gains, hiring freezes, and cost control. Reports indicated capacity reductions aligned with weaker demand and lower production requirements.
Cost caution influenced purchasing and stock-holding decisions in December, with input buying activity reduced for the 18th consecutive month. Inventories of both inputs and finished products were intentionally depleted, reflecting initiatives to improve cash flow and adjust operations to lower output and demand.
Average vendor performance improved for the 11th consecutive month in December, with shorter lead times due to lower demand for inputs. Purchase prices decreased, reflecting lower costs for various materials.
Business optimism hit a 12-month low in December, reflecting a faltering economy, client closures, and high-interest rates. Nevertheless, companies expect production to rise over the coming 12 months, driven mainly by sales drives and new product launches.
Rob Dobson, director at S&P Global Market Intelligence, commented on the survey results, stating, “UK manufacturing output contracted at an increased rate at the end of 2023. The demand backdrop also remains frosty, with new orders sinking further as conditions remain tough in both the domestic market and in key export markets, notably the EU. The downturn has hit manufacturers’ confidence, which dipped to its lowest level in a year, and encouraged renewed cost caution with further cutbacks to stock levels, purchasing, and employment. With concerns about high interest rates and the cost-of-living crisis hurting demand, the outlook for manufacturers in the months ahead remains decidedly gloomy. The downturn in demand is having some positive effects on supply chains, however, with suppliers reducing their prices for raw materials and vendor lead times showing a further improvement.”