By Daniel Hunter
The downturn in UK manufacturing production extended into its third successive month in September, as order inflows remained lacklustre and job losses continued to mount. Cost pressures also surged higher on the back of the recent strengthening of oil, food and commodity prices.
The seasonally adjusted Markit/CIPS Purchasing Manager’s Index (PMI) edged lower to 48.4 in September, from 49.6 in August, to remain below the no-change level of 50.0 for the fifth month in a row. The average PMI reading over Q3 2012 as a whole (47.7) is the lowest since Q2 2009.
Output contracted across the consumer, intermediate and investment goods sectors during September. Companies linked lower production to increase in new work during the latest survey period.
Inflows of new export orders declined for the sixth straight month in September, amid reports of weaker demand from within the European Union and Asia. On the plus side, companies saw an increase in the level of new work received from clients in the US and the Middle East.
Cost pressures surged higher in September, with the rate of increase in average purchase prices hitting a six-month peak. This was attributed to the rising cost of chemicals, energy, foodstuffs, metals, oil and plastics. Average selling prices continued to edge higher in September. However, the rate of charge inflation was the lowest in eight months, as weak demand and strong competition restricted manufacturers’ pricing power.
“The UK manufacturing sector has lost momentum again at the end of the third quarter, with firms suffering the double blow of falling output and rising costs," Chris Williamson, Chief Economist at survey compilers Markit.
“After an initial rebound since activity was hit by the extra holidays for the Queen’s Diamond Jubilee in June, a downward trend in the rate of output growth is again evident. The survey data are consistent with manufacturing output falling sharply, at a quarterly rate in excess of 1% in September. At that pace, the sector could dampen economic growth severely and keep the economy in recession.
“Job losses are mounting again as a result. A steep rise in raw material costs does not help, linked to rising oil and agricultural commodity prices in particular, which manufacturers sought to offset by cutting labour costs via job losses.
“A bright spot in the survey was an uplift in growth of new orders to the highest since March, which is attributable to domestic demand perking up. However, while an improving trend in new order inflows bodes well for production in the coming months, the increase was only very modest due to falling exports.
"Overseas sales continue to be hit by the ongoing deterioration in global economic growth, with the euro zone — the UK’s largest export market — at the epicentre of the weakness. In this global economic environment, manufacturers look certain to struggle and the sector is unlikely to act as a driver of economic growth.”
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