UK's manufacturing shows no sign of improvement, hits 11-month low

The downturn in the UK manufacturing sector deepened at the end of 2024, as December saw rates of contraction in output, new orders and employment gather pace. Destocking at clients, subdued market confidence and operational restructuring in response to forthcoming legislative changes hit output and demand and reinforced ongoing efforts to achieve cost efficiencies, as per a statement by S&P Global.

Manufacturing production contracted for the second consecutive month in December, with the rate of decline accelerating to its fastest since January 2024. Total new business fell for the third straight month and at the quickest pace since October 2023. There was also some mention of some UK-based clients scaling back on purchasing considering the higher cost environment, sometimes linked to restructuring operations in advance of forthcoming rises in labour costs and payroll taxes.

December also saw the fastest reduction in overall export sales for ten months. Steep drops in foreign demand were registered in both the intermediate and investment goods industries, in contrast to a mild uptick in new export order wins at consumer goods producers. Where a decrease was reported, there was mention of lower order intakes from clients in Europe, Asia and the USA, added the statement.

The current downturn and manufacturers' weakened outlook for the economy had negative impacts on business confidence and employment during December. Optimism dipped to a two-year low, with sentiment declining across all three of the sub-sectors (consumer, intermediate and investment goods) and company size categories (small, medium and large) monitored.

Manufacturers reported concerns about a lack of market confidence, inflationary pressures, rising costs (especially for employer NI and payrolls) and expectations of weaker economic growth looking ahead.

Purchase price inflation edged higher in December. Anecdotal evidence cited rising transport costs and raw material prices, as well as the pass through of higher employment costs by suppliers. There were also reports of rising global market prices, material shortages, taxes and currency fluctuations. Current and expected future cost increases led manufacturers to pro-actively raise their selling prices. Supply-chain pressures continued to build, as the ongoing Red Sea crisis and disruptions to shipping and at ports led to an increased incidence of delivery delays, highlighted S&P in its press statement.

“A stalling domestic economy, weak export sales and concerns about future cost increases led to the steepest contraction of UK manufacturing production for almost a year in December. Manufacturers are facing an increasingly downbeat backdrop. Business sentiment is now at its lowest for two years, as the new Government's rhetoric and announced policy changes dampen confidence and raise costs at UK factories and their clients alike. SMEs are being especially hard hit during the latest downturn,” said Rob Dobson, director at S&P Global Market Intelligence.

ALCHEMPro News Desk (SG)