Business optimism dipped to its lowest since May 2020, as the number of firms expecting production to rise over the coming year fell to 47% (from 55% in May), the PMI also found. The PMI fell to a two-year low of 52.8 in June, down from 54.6 in May. The PMI has remained above the 50.0 mark since June 2020.
Manufacturing production rose for the twenty-fifth consecutive month in June. However, the rate of expansion was the weakest during the current upturn. Performances differed widely across the sector. Consumer goods producers saw a marked downturn in output, while robust expansion was again registered in the investment goods industry.
June saw intakes of new work decline for the first time since January 2021. Companies indicated that the weaker economic outlook, reduced new export order intakes, slower growth of domestic demand, the war in Ukraine, raw material shortages and the slowdown in China all contributed to the reduction in new work received.
The consumer goods and intermediate goods sectors were hardest hit by the decline in new order inflows. In contrast, investment goods producers saw new work rise for the fifth month running.
New export orders contracted for the fifth month running in June, mainly reflecting the slowdown in China, rising economic uncertainty, the war in Ukraine and increased competition. Some firms also noted that ongoing Brexit related difficulties and weaker growth had impacted new order intakes from the EU. New export business declined in the consumer and intermediate goods industries, and was unchanged in the investment goods category.
The manufacturing slowdown and tougher economic backdrop drained business optimism in June. Firms raised concerns about flat domestic demand, weaker export markets, inflationary pressure, the effect of the increased cost of living on consumer demand and supply chain issues.
Positive sentiment fell to its lowest since May 2020, but companies still expect output to be higher (on average) one year from now. Optimism was linked to investment, growth plans and hopes for a return to a more "normal" economic environment.
Jobs growth was registered for the 18th successive month in June. Increased employment was linked to higher output, staff shortages and efforts to reduce backlogs of work (which fell for the second month running). Staffing levels rose across the consumer, intermediate and investment goods sectors and at small, medium and large sized producers.
Price inflationary pressures remained elevated at UK manufacturers during June. Input costs rose on the back of raw material shortages, stretched supply chains, higher prices for commodities, electronics, energy, oil, paper, plastics and timber (among other items). Higher costs were passed on, in part, to clients in the form of increased selling prices. That said, rates of inflation in both price measures
continued to ease.
Purchasing activity increased for the seventeenth consecutive month in June. Increased demand for inputs alongside ongoing supply chain constraints led to a further marked lengthening of vendor lead times.
Maddie Walker, managing director at Accenture, Industry X, commented: “As inflation, and costs of fuel, raw materials, rent and staffing reach fresh highs, manufacturers will be focused on finding ways to keep their costs down.
"Meanwhile, consumer spending cutbacks will likely grow, subduing demand. Across the board, business’ optimism and confidence is decreasing, and the industry as a whole will have to take swift action to ease the pressures they are facing.
"Manufacturers themselves can take some steps to navigate further supply chain uncertainty, such as investing in technology to help build resilience against future shocks and create more efficiency.”
