Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index, which has fallen to 46.2 in September, down from 47.0 in August, Mike Thornton, Head of Industrials at RSM UK, said: “The latest fall in manufacturing activity in September was another blow for the sector, showing a continued downward trend rather than a seasonal dip in August. The output index has dropped to 45.7, the lowest level since March, signalling a sharp slowdown in production levels as weak demand, falling new orders and subdued export activity continue to weigh heavily on the sector. This sustained contraction suggests manufacturers are scaling back operations to mitigate deteriorating market conditions, with little sign of a rebound in the short term. Businesses should therefore expect a stagnant outlook for the remainder of the year.

“More positively, input prices are at their lowest level this year, which could offer some relief. Inflationary pressures are also easing, suggesting that price shocks resulting from the Spring Statement are starting to fade, including the double whammy of employment costs introduced in April. However, with output prices also falling, it appears that manufacturers are struggling to maintain margins and weaker demand is making it difficult to pass on costs to the consumer.”

He added: “Against a backdrop of weak demand and sustained contraction, the sector cannot afford any further shocks in the upcoming Autumn Budget. Sentiment around tax hikes and spending cuts is already dampening business confidence, with the shelving of 0% tariffs on UK steel further adding to market uncertainty. Despite the government’s ambitions for advanced manufacturing as a growth-driving industry, it seems the Industrial Strategy has done little to drive growth in the sector so far, leaving it unable to bear the brunt of tax hikes without further investment and direction.”

Thomas Pugh, chief economist at RSM UK, said: “The pace of decline in the manufacturing sector accelerated in September, derailing nascent signs of a recovery in the output index of the PMI, which had almost recovered to that crucial 50 mark over summer.

“Admittedly, much of the decline in the output index may be related to the shutdown at Jaguar Land Rover. But, new export orders slumped to the lowest point since April as tariffs continue to bite and manufacturing firms try to navigate the shifting global landscape. Weak demand from abroad will be compounded by rising costs from the hike to National Insurance, which has kept the employment balance thoroughly depressed as firms adjust headcounts in response. A weaker labour market may tempt the Bank of England to cut rates again later this year, but with inflation set to stay close to 4% for the rest of the year, we think the next cut will come in February.

“All told, the manufacturing sector continues to lag behind the rest of the economy as it weathers the storm from the double whammy of taxes and tariffs in April. Persistent cost pressures combined with sluggish demand from US tariffs are clearly having an impact on the sector and are likely to continue for the rest of this year.”

Related news