By Marcus Leach

The UK manufacturing sector contracted for the second successive month in November, as companies cut back production in response to lower demand from both domestic and export clients.

Weaker operating conditions were reflected in the labour market, with payroll numbers reduced at the fastest pace for over two years.

The seasonally adjusted Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) fell to 47.6 in November, its lowest level since June 2009. This was from an upwardly revised figure of 47.8 in October (previously reported as 47.4).

Manufacturing output fell for the third time in the past four months in November, and at the sharpest pace for over two-and-a-half years. Consumer goods producers reported a marked rate of contraction that was the fastest since February 2009. Output also fell slightly in both the intermediate and investment goods sectors.

Lower production was linked to reduced new order inflows, weaker global and domestic market conditions and clients becoming increasingly reluctant to spend. November saw incoming new orders fall for the fifth month running, although the rate of contraction eased from October when orders fell at the fastest pace for over two-and-a-half years. Meanwhile, new export orders declined on the back of reduced order inflows from mainland Europe, the US and Asia.

The ongoing contraction in incoming new work led to a further marked reduction of backlogs of work in November. Outstanding business fell to the greatest extent for 27 months, signalling that the current rate of replenishment of order books is insufficient to match the pace at which contracts are being completed.

Manufacturers cut levels of staffing, purchasing and stock holdings in November. Employment fell at the fastest rate since October 2009, a marked reduction in input buying volumes was reported for the second month running, and holdings of both pre- and post-production stocks were depleted.

Average input costs declined for the first time since July 2009, as companies reported paying less for a number of alloys, chemicals, commodities, plastics 40.0 and steel. The reduction mainly reflected increased competition between suppliers. This was despite signs of increased supply-chain pressure following a marked lengthening in vendor lead times.

A combination of weaker demand, declining input cost pressures and strong competition further reduced the rate of inflation in factory gate prices. Selling prices rose at the slowest pace during the current 25-month period of increase.

“The manufacturing engine has run out of steam. Output is falling at the fastest rate since early 2009 as order inflows from domestic and overseas markets continue to deteriorate. Jobs are consequently being lost at the fastest rate for over two years as producers seek to scale back operating capacity in line with a darkening economic outlook," Rob Dobson, Senior Economist at Markit and author of the Markit/CIPS Manufacturing PMI said.

“The lack of new work is forcing manufacturers to rely on previously-placed orders to avoid sharper cutbacks in output and employment. This cannot go on indefinitely, and job losses will inevitably mount if order books continue to weaken.

“Manufacturers are also running down their warehouse stock levels to cut costs. Two of the props underpinning the rebound in economic growth in the third quarter, inventories and industry, are therefore more likely to act as a drag on the economy in the final quarter than give support. However, falling input costs and muted selling price inflation may provide some scope for further stimulus from the Bank of England.”

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