UK manufacturers suffer worst drop in new orders for two years

UK manufacturers: A worker assembles a new bike frame at the Pashley bicycle factory in Stratford-upon-Avon
Lower volumes of new business from abroad also added to the deterioration in order books during November, as well as the steepest fall in export sales among UK manufacturers since May 2020. Photo: Phil Noble/Reuters

UK manufacturers saw their output continue to shrink this month, with new orders falling at the fastest pace for almost two years.

According to the latest purchasing managers’ index (PMI) from S&P Global, new orders fell at the sharpest level since January 2021, as squeezed client budgets weighed on demand in both the manufacturing and service sectors.

Lower volumes of new business from abroad also added to the deterioration in order books during November, as well as the steepest fall in export sales among manufacturing companies since May 2020.

It was the fourth month of decline for UK private sector firms, pointing to a deepening recession.

The UK's PMI for new orders increased from 39.9 to 41 during the period, but remained the sixth straight month of contraction.

Any figure below 50 indicates output is shrinking, while a reading above 50 shows growth.

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The headline seasonally adjusted composite output index rose to 48.3 in November, from 48.2 in October, while manufacturing production (45.4) continued to decline at a faster pace than service sector activity at 48.8.

A number of firms noted that fewer instances of supply shortages had helped to support production volumes during November.

On a more positive note, business expectations for the year ahead rebounded from the 30-month low seen in October, S&P said.

Survey respondents commented on recession worries and increasingly challenging economic conditions, but there were fewer comments citing domestic political uncertainty.

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Employment numbers also continued to rise during the month, although falling volumes of incoming new work contributed to a slower rate of job creation.

The latest increase in private sector employment was only marginal and the weakest recorded for 21 months.

Service providers saw a modest rise in staff levels, but manufacturers indicated the steepest degree of job losses since October 2020. Manufacturing companies often cited the non-replacement of voluntary leavers due to shortages of new work to replace completed orders.

“A further steep fall in business activity in November adds to growing signs that the UK is in recession, with GDP likely to fall for a second consecutive quarter in the closing months of 2022,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said.

“If pandemic lockdown months are excluded, the PMI for the fourth quarter so far is signalling the steepest economic contraction since the height of the global financial crisis in the first quarter of 2009, consistent with the economy contracting at a quarterly rate of 0.4%.

“Forward-looking indicators, notably an increasingly steep drop in demand for goods and services, suggest the downturn will deepen as we head into the new year.”

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He added: “While the recent change of government has resulted in improved business confidence, the business mood remains among the gloomiest seen over the past quarter century amid the numerous headwinds, which include the cost of living crisis, the Ukraine war, steepening export losses (often linked to Brexit), higher borrowing costs, fiscal tightening and heightened political uncertainty.

“Price pressures meanwhile remain elevated but show further signs of cooling, often linked to weakened demand, which — combined with the growing recession signals — suggest that the Bank of England may start to make less aggressive interest rate hikes in the coming months.”

Watch: How does inflation affect interest rates?