Factories bearing the brunt of UK economic slowdown | Manufacturing sector

Britain’s factories are bearing the brunt of the slowdown in the economy as higher costs, weaker demand and supply bottlenecks combine to send output plunging.

Two separate snapshots of industrial activity showed a decline in manufacturing activity – part of a Europe-wide trend exacerbated by the economic fallout from the war in Ukraine.

The monthly purchasing managers’ index from S&P/Cips found manufacturing output at its weakest level since the early stages of the pandemic in the spring of 2020.

Other than the fall suffered during the Covid lockdown, the decline from 48.9 to 42.4 between July and August was the quickest since the global financial crisis in 2009. A reading below 50 indicates contraction rather than expansion.

Modest growth in the UK’s much bigger service sector prevented the overall measure of private-sector activity dipping below 50, but the drop from 52.1 to 50.9 left the composite index at its weakest in 18 months. The eurozone’s overall PMI fell from 49.9 to 49.2 in August, also the lowest in 18 months.

Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said: “The UK private sector moved closer to stagnation in August, as mild growth of activity across the service sector only just offset a deepening downturn at manufacturers.

“Waning customer demand amid the weaker economic outlook, and shortages of both staff and inputs, were reported to have hit goods producers hard, with firms registering the quickest drops in output and new work since May 2020. Excluding the initial phase of the pandemic in early 2020, the reduction in manufacturing output was the quickest seen since the start of 2009. Meanwhile, the service sector registered the weakest increase in activity since the recovery began in early 2021.”

The CBI’s industrial trends survey showed that in the latest three months manufacturers’ order books shrank and output fell for the first time since February 2021.

The employers’ lobby group said the mood in industry had become gloomier in recent months amid expectations that there would be no pickup in output in the months ahead.

Alpesh Paleja, a CBI economist, said: “From rising prices to bottlenecks in supply chains, manufacturers continue to operate against a background of high input costs and significant operational delays. When coupled with an oncoming economic downturn, it is not surprising to see orders and activity ebb away as we move through the year.”

In addition to rising energy bills, manufacturers are also braced for further increases in interest rates from the Bank of England. The City expects official borrowing costs, currently 1.75%, to reach 4% by next spring.