Manufacturers remain vulnerable despite slight uptick in PMI, says RSM UK

02 October 2023
Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index which has seen a slight uptick to 44.3, Mike Thornton, national head of manufacturing at RSM UK, said: ‘The manufacturing PMI in September increased to 44.3, up from 43 in August, suggesting that the steepest falls may be over amidst rising interest rates, inflationary pressure and a depleted pipeline over the last year. With a sign of activity levels stabilising, this could be the change in momentum manufacturers have been hoping for to build back their margins. 

‘That said, the industry is now entering its second year of contraction. The PMI is still well below 50, meaning that activity is declining, just less significantly than in previous months, indicative that manufacturers are still in a vulnerable position. Looking ahead, with output prices up to 51.9, and input prices also increasing to 43.7, manufacturers will be focused on protecting and building back their profit margins, especially as inflation starts to ease.’ 

He added: ‘As an energy-intensive industry, manufacturers will be hopeful that inflation will continue to fall, as this will be more impactful than any tax cut announced in the upcoming Autumn Budget. The key component missing is lack of clarity from UK government. Manufacturers have been hit the hardest by economic instability as they need capital investment in order to grow, reinforcing the urgent need for an industrial strategy which manufacturers have been calling for, for some time now.’ 

Thomas Pugh, economist at RSM UK, added: ‘With inflation set to continue to fall sharply over the rest of this year, consumers’ real incomes beginning to grow again and interest rates looking like they have peaked there is a bit more room for optimism now than there has been previously. Indeed, the tick up in the manufacturing PMI, in contrast to the drop in the flash services PMI, suggests that output in the manufacturing sector may have started to stabilise after contracting for two years. Of course, the PMI is still signalling that output is falling and we are expecting precious little growth in the overall economy this year, even if a recession is avoided, so conditions in the industry are likely to remain tough. But there are some reasons to be a bit more positive over the next six months.’