Weak demand, elevated price inflation, plus raw material and staff shortages all impacted production. There was some better news, however, as the downturn showed further signs of easing, cost increases slowed and pressure on supply chains lessened.
The PMI posted 47.0 in January, up from December's 31-month low of 45.3 and above the flash estimate of 46.7. The headline PMI remained at a sub-50.0 level, signalling deterioration, for the sixth successive month.
Companies reported that production had been stymied by lower intakes of new work and disruptions caused by raw material and staff shortages. The total volume of new business received fell for the eighth month running, reflecting weaker demand from both domestic and overseas clients, the latter affected by lower intakes of new work from the US, EMEA and Asia (especially China). Ongoing port and Brexit issues also had an impact.
Manufacturers maintained a positive outlook for the sector despite the ongoing downturn, fears about sustained price inflation and the possibility of a UK economic recession. Optimism rose to its highest level since April 2022, reflecting new projects and products, investment opportunities, proactive sales and marketing initiatives and hoped for revivals of domestic and overseas market conditions. Almost 57% of manufacturers reported that output would be higher one-year from now.
The ongoing manufacturing downturn affected decisions relating to hirings, purchasing and stock holdings in January. Employment fell for the fourth successive month. Some firms cut jobs in response to lower production and weaker market demand, whereas others experienced difficulties in replacing leavers due to shortages of labour and required skill sets.
Capacity (on average) remained sufficient to cope with the demands of both new and existing contracts. This was highlighted by a further substantial decrease in work-inhand (but not yet completed) at UK factories. Purchasing activity was reduced for the seventh successive month, with the rate of decline equalling November's two and-a-half year record.
Inventories of inputs subsequently fell for the fourth month running. Stocks of finished products were also depleted for the first time since April 2022, linked to contract completions and the despatch of delayed orders.
Although global supply chains remained stretched at the start of 2023, UK manufacturers again indicated signs of these constraints lessening. Average vendor delivery times lengthened only mildly and to the least marked degree in three years. Manufacturers still face difficulties relating to supplier capacity, port delays, Brexit, the war in Ukraine and input shortages, however.
Average input costs rose at the least marked rate for 27 months in January. However, there was a slight uptick in selling price inflation, mainly reflecting a marked acceleration at consumer goods producers.
Commenting on the PMI, Maddie Walker, Industry X lead for Accenture in the UK, said: “It’s a mixed landscape for manufacturers right now. There are signs from across the economy that inflation is easing, however the impact continues to be felt as energy costs and pricing remain well above the average that businesses have gotten used to.
"Certain industries, such as car production, also continue to be hampered by semiconductor shortages and factory closures. Manufacturers stand the best chance of remaining resilient by continuing to invest in the right people, skills and technologies for the long-term.”
