UK manufacturing output falls at fastest rate in 8 years
By Michele Maatouk
Date: Wednesday 01 Apr 2020
(Sharecast News) - UK manufacturing output fell in March at its fastest rate in eight years, while employment declined at the fastest rate in more than a decade as the coronavirus outbreak and efforts to slow its spread took their toll, according to data released on Wednesday.
The IHS/Markit CIPS manufacturing purchasing managers' index came in at 47.8, down from 51.7 in February, below the flash estimate of 48.0 but above consensus expectations for a reading of 47.0.
This marked the fastest rate of decline since July 2012. A reading above 50.0 indicates expansion, while a reading below signals contraction.
Meanwhile, employment fell for the eleventh time in the past 12 months and at the fastest rate since July 2009. Job losses were linked to lower levels of production and new orders, in many cases due to the outbreak of Covid-19.
Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: "The manufacturing sector was knocked sideways by the impact of Covid-19 and into contraction territory, experiencing some of the most challenging trading conditions since PMI records began.
"Closed borders, significant shipping delays and a reluctance from clients to authorise new instructions resulted in the sharpest contraction in orders from domestic and overseas markets since 2012. Business optimism dropped to historical lows as manufacturers struggled to get essential raw materials, whilst some fortunate few were able to stockpile to a limited extent before the opportunities vanished.
"With supplier delivery times at their worst for 28 years these fast-moving challenges affected every link in manufacturing supply chains and on an unprecedented scale. Inevitably, job creation suffered as a result as employment was reduced at the fastest pace since 2009."
Brock said that with supply chains crumbling around the world, we can only expect a worsening outlook next month as lockdown measures squeeze manufacturing production.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the PMI likely "greatly understates" the pace of the downturn now underway in the manufacturing sector.
"For a start, the PMI perversely is boosted perversely by supply chain disruption. The suppliers' delivery times index fell to a record low in March, indicating unprecedented wait times for components. This index has a 15% weight in the PMI calculation and it is inverted, because longer waits usually imply that demand has increased faster than supply, though that isn't the case at the moment. The manufacturing output index in March, 43.9, was nearly four points below the PMI. In addition, 88% of responses to Markit's survey were received by March 20 - the cut-off for the flash reading- just before schools were closed, hitting labour supply, and all non-essential shops were forced to shut.
"Responses received between March 20 and 26 were consistent with a 41.0 output index, the lowest level since February 2009. Looking ahead, demand for goods likely won't slump as much as for services, given that many are essential items that still can be purchased online. But with consumers clamping down on all discretionary spending in the current uncertain environment, the manufacturing sector inevitably will struggle further."
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