Manufacturers produced less and saw fewer orders in July than at any time since the depths of the financial crisis, the latest survey by Markit and the Chartered Institute of Purchasing and Supply has found.
Output and new orders both declined sharply last month giving a Purchasing Managers' Index (PMI) of 45.4 – the lowest figure since May 2009. Fifty, the neutral point, indicates that nothing has changed, while PMIs above 50 show expansion. But Markit's surveys this year have been on a downward trajectory. “Operating conditions have deteriorated in each of the past three months,” the organisation said.
Companies saw a tailing off of orders in both domestic and export markets, with the Eurozone the chief culprit. Alarmingly, business with Asia was also down. Export business has now declined for four months in a row, Markit said.
Manufacturers will have welcomed a decline in the cost of raw materials and a slight boost in terms of employment, which experienced a “marginal” boost in July compared to the previous three months. Factory gate prices also rose.
David Noble, chief executive officer of the institute, said: “A perfect storm of wet weather and weak confidence in the UK has combined with global economic drift to engulf the manufacturing sector in July. While the Eurozone has continued to be the major factor, declines in business from Asia have dashed hopes of a quicker recovery.
He added: “Manufacturers are doing everything they can to arrest the decline, working through backlogs, cutting back on purchasing, and passing on costs, but there is little room to manoeuvre. A slight increase in employment is the thinnest of silver linings for the sector, along with lower input prices and further growth in the consumer goods industry.
“However, the sharp decline in production of both investment goods and intermediate goods is an ominous sign.”
Philippa Oldham, Head of Manufacturing at the Institution of Mechanical Engineers, said: “These figures are deeply worrying. Government keeps pledging its support for manufacturing but the sector is now shrinking faster than it has done in three years. If Government is serious about supporting this industry and rebalancing the economy away from an over reliance on financial services, then it needs to urgently develop a detailed manufacturing and industrial strategy with the collaboration of industry.”
She added: “This industrial strategy needs to be developed with a cross-party consensus to ensure UK industry has long-term political commitment. More work also needs to be done to help deliver greater capital investment in new production plants, machinery and training.”
Darren Jukes, a partner in PwC's manufacturing practice, said the figures were very disappointing. He added: “The drop of three points in today's PMI figures will not help lift the ongoing cloud of economic and unemployment uncertainty. What is clear however is that the Eurozone crisis continues to impact the industry along with the recently reported slow down in some of the Asian economies.
Jukes added: "This is being felt across Europe with similar downward results being reported in Spain, Italy and Greece, whilst France and Germany have suffered the lowest level of manufacturing activity in more than three years.”