Domestic and overseas demand remained lacklustre, as clients faced rising costs, increased market volatility and (in the case of EU-based clients) Brexit-related complications.
The PMI fell to a 31-month low of 45.3 in December, down from 46.5 in November but above the earlier flash estimate of 44.7. The PMI has remained below the neutral 50.0 mark for five successive months. Excluding the series lows registered during the first pandemic lockdown, the current PMI reading is one of the weakest since mid-2009.
All five of the PMI sub-indices signalled a weaker operating environment for the UK manufacturing economy. Output, new orders, employment and stocks of purchases all fell at accelerated rates, while vendor delivery times (an indicator of supply chain stress) lengthened to the least marked extent since January 2020.
Manufacturing production contracted for the sixth successive month in December. Moreover, the rate of decline was among the steepest during the past 14 years. Companies reported that output had been scaled back due to declining intakes of new work and disruption caused by stretched supply chains and material shortages.
December saw a similarly steep decrease in the level of incoming new business. The decline in new work received reflected weaker domestic and overseas demand, economic uncertainty, client destocking and customers postponing orders.
On the export front, manufacturers reported lower demand from markets such as China, the US, mainland Europe and Ireland. The main driver of lost export contracts was weak global economic conditions, while there was also mention of Brexit-related issues (such as shipping delays and higher costs) leading some EU clients to source products elsewhere.
The downturn in manufacturing was also increasingly reflected in the labour market. Job cuts were seen for the third consecutive month, with the rate of loss the steepest since October 2020. Signs of excess capacity became more evident during the month, with backlogs of work falling at the second-quickest pace in over a decade.
Data broken down by product category showed that the intermediate goods sector was the worst performer overall, hit by the steepest drops in output, new orders and employment by some distance. Production and new work received also fell in the consumer goods category. Investment goods was a relative bright spot, seeing both output and new orders rise.
December saw a further easing in the rates of increase in both output prices and input costs. Average purchase prices rose for the thirty-seventh consecutive month, albeit to the least marked extent since November 2020.
Companies reported a wide range of inputs as up in price. These included chemicals, electronics, energy, food products, packaging, paper, plastics and timber. There were also reports that demand-supply imbalances, raw material shortages and rising transportation costs all contributed to the latest rise in purchase prices.
UK manufacturers passed on part of the increase in costs to their clients in the form of higher selling prices during December. However, in line with the easing in cost inflation, the rate of increase in output charges dipped to a near two-year low.
Commenting on the PMI, Maddie Walker, Industry X lead for Accenture in the UK, said: “A continued downturn in manufacturing ends the year on a disappointing note, with rising costs and deteriorating demand delivering another blow.
"With customers feeling the sting of inflation, muted sales in the Christmas trading period will weaken confidence and a fall in orders may put a brake on further production in the months ahead.
"However, we know that manufacturers have become experts at resilience. We expect to see more use of productivity and process improvement programmes to improve operational efficiency as we move into the new year.”
