Seasonal dip in new orders derails UK manufacturing recovery
Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index, which has fallen to 47.0 in August, down from 48.0 in July, Mike Thornton, Head of Industrials at RSM UK, said: “The latest fall in the manufacturing PMI reversed a three-month upward trend with a sharp fall in new orders dragging down the headline figure. We tend to see a slight drop off in new orders seasonally as the summer holidays hit, but the fall this year was sharper than previous years. Hopefully it’s a seasonal blip and we will see further signs of a recovery later in the year.
“Input prices also jumped from 57.0 to 57.7 and output prices fell from 55.6 to 53.7 showing that manufacturers are currently absorbing extra costs rather than passing this on through higher prices. When you factor in higher input prices with mounting cost pressures from energy prices and employment costs then the squeeze on margins could be a toxic combination.
“With multiple headwinds impacting the industry, manufacturers will be looking ahead to the Autumn Budget to provide some further stimulus following the launch of the long-awaited Industrial Strategy earlier in the year. No additional cost pressures for manufacturers would seem and imperative.”
Thomas Pugh, chief economist at RSM UK, said: “While the services sector posted an impressive rebound in the summer, the manufacturing sector is still struggling from weak demand and intense competition.
“Indeed, the weakness in new orders, even if it is partly seasonal, suggests demand is tepid. At the same time, rising input costs from higher agricultural commodity prices and the National Insurance hike is putting upward pressure on input costs. That is likely to be reflected in higher inflation over the next few months, especially in food prices. We expect headline CPI to reach 4% in September.
“Overall, the manufacturing sector appears to be lagging behind the rest of the economy as it recovers from the tax and tariff barrage in April. Rising costs amid an environment of tepid global demand and uncertainty from US tariffs still appears to be having a significant impact on the sector.”