Manufacturing survey shows fall in activity

The UK’s manufacturing sector returned to contraction in February, a situation exacerbated by falling output, orders, headcount, and purchasing activity.

This is the conclusion of the seasonally adjusted Markit/CIPS Purchasing Manager’s Index (PMI) for February, which scored 47.9 compared to 50.5 in January.

The latest survey found that purchasing activity was cut markedly as manufacturers continued to signal a preference for lower stock holdings and new orders fell for a second successive month at an accelerated pace.

According to the survey, the latest fall was the sharpest since last July amid reports of challenging market conditions at home and abroad. Poor weather was also mentioned as a factor negatively impacting on order book volumes.

Carl Williamson, manufacturing sector lead at Lloyds Bank Commercial Banking, said, ‘The positive start to the year has dissipated and the reversals in orders and output indicate that the challenging trading conditions have taken their toll on the manufacturing sector.’

New export orders declined at a modest pace for the fourteenth successive month. Whereas Europe was generally perceived to be an area of demand weakness, emerging markets remained a source of growth.

The net reduction in new order volumes weighed on manufacturing production during the latest survey period. Production fell slightly, the first reduction since last October whereas in January output had risen at the fastest pace for 21 months.

Manufacturers were again able to focus their resources into clearing work outstanding during February with backlogs of work declining for the twenty-fifth consecutive month.

There were reports of spare capacity and this in part led to a further reduction in employment, the seventh in as many months. Moreover, the degree of job shedding was the fastest for 40 months. A combination of redundancies and natural wastage was reported, with large-sized enterprises making the steepest cuts.

Average prices charged continued to rise as companies sought to recover profit margins following a sustained run of input cost inflation into the start of 2013.

However, latest data showed that input costs were marginally down during February. There was evidence of successful price negotiations with suppliers, although sterling weakness was reported to have led to upward pressure on the cost of imported goods.

UK manufacturers recorded the sharpest reduction in their purchasing activity for seven months during February. Input buying has now fallen for 12 successive survey periods. Lower new orders and a preference for reduced stock holdings reportedly led to the latest cut in purchasing.

David Noble, CEO at the Chartered Institute of Purchasing & Supply said, ‘Of concern is the dearth of encouraging signs for the future. The sector witnessed a fall in new orders at home and a continued lack of demand abroad and, perhaps most ominously, we saw the greatest fall in employment for 40 months.

‘Moreover, the sector seems to continue to grapple with the ongoing problems of playing hostage to European fortunes, whilst unable to fully take advantage of emerging growth markets.

‘A slight reversal in fortunes on input prices offers the slightest respite to manufacturers who were able to pass costs on to suppliers, but not sufficiently to offset the damage done elsewhere.’

Williamson added, ‘Weak demand from the Eurozone remains a concern within the sector and further emphasises the need for manufacturers to develop new international networks and target emerging markets. On going inflationary pressures, and the impact this has on real income and consumer spending, have dampened domestic demand for manufactured goods.

‘Despite toiling under difficult economic conditions, we see that manufacturers retain a sense of optimism and continue to show the determination needed to adapt to the changing landscape.’