S&P Global’s PMI posted 49.9 in October, down from 51.5 in September and the earlier flash estimate of 50.3. This is the first time that the PMI has fallen below the neutral 50 mark – that separates growth from decline – since April.
A lack of market optimism, slower economic growth, stretched supply chains and concerns about the impacts of possible announcements in the Labour Government’s first Budget – which was yet to be announced at the time of the survey – led to reduced intakes of new work and a near-stalling of output growth, S&P Global said.
'Uncertain footing'
The new orders and stocks of purchases components, both of which signalled solid contractions, impacted the PMI the most, while a noticeable easing in the rate of expansion of production also contributed to the decline in its level.
Although manufacturing output rose for the sixth successive month in October, S&P Global found that the rate of increase was only slight and the weakest during that sequence. Output growth was registered in the consumer and investment goods sector, offsetting a marked cutback in production volumes in the intermediate goods category.
Higher production was mainly sustained through efforts to complete existing contracts and also contributed to a mild building up of inventory holdings. Both of these compensated for the first outright contraction in new order intakes since April.
The decline in new work inflows reflected a lack of market confidence, economic slowdown and some domestic clients applying a ‘wait-and-see approach’ to committing to new contracts ahead of the UK budget, the survey found.
In addition, demand was weaker from both domestic and export clients. In particular, export orders fell for the thirty-third consecutive month, amid reports of lower intakes from clients in Europe, China and the US.
Employment increase and business optimism
More positively, UK manufacturing employment increased for the third time in the past four months in October. Companies linked job creation to higher production and efforts to clear backlogs of work.
However, S&P Global emphasised that the rate of increase was only modest, as many firms remained cautious about incurring additional costs, given uncertainty about the impact of possible changes announced in the UK Budget. It also reflected relatively muted confidence about the future among manufacturers, the company said.
Business optimism recovered only slightly from September's nine-month low during October. That said, the majority of firms (52 per cent) said they still expect to see production rise over the coming year, compared to only 8 per cent forecasting contraction. Where positive sentiment was indicated, this was attributed to new product development and hopes for a market revival.
There were positive signs on the price front, as the rate of increase in input costs slowed sharply to its weakest in the current ten-month sequence of inflation. The extent of the easing was among the steepest in the near 33-year survey history.
Finally, the survey found that supply chains remained under stress in October, as average vendor lead times lengthened for the tenth month in a row. Delivery times increased to the greatest extent since February, which companies attributed to shipping delays, the Red Sea crisis, capacity shortages at vendors and port strikes.
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In a statement, Rob Dobson, Director at S&P Global Market Intelligence, said: “UK manufacturing started the final quarter of the year on an uncertain footing amid speculation on government policies ahead of the Budget, which was widely reported to have led to a wait-and-see approach on investment and spending.
“The generally lacklustre environment was reflected in the headline PMI slipping below its neutral 50.0 mark and business optimism hovering only slightly above September's nine-month low.
“The November PMI will be especially keenly anticipated to see the near-term impact of the Budget on business conditions and in particular the effect on confidence.”
