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UK manufacturing slows as business optimism hits lowest in more than two years

·Business Reporter, Yahoo Finance UK
·3-min read
UK manufacturing: A worker cuts newly manufactured bars of steel
The UK manufacturing Purchasing Managers’ Index fell to a two-year low of 52.8 in June, down from 54.6 in May. Photo: Phil Noble/Reuters

UK manufacturing continued its slowdown last month as business optimism dipped to its lowest level in over two years.

According to the latest data from S&P Global, June saw output growth grind to a near-standstill pace, while new orders contracted for the first time in 17 months.

Business optimism dipped to its lowest since May 2020, when the country was still in the first COVID lockdown, as the number of firms expecting production to rise over the coming year fell to 47%. This was down from 55% in May.

Firms raised concerns about flat domestic demand, weaker export markets, inflationary pressure, the effect of the increased cost of living on consumer demand and supply chain issues.

Chart: S&P Global
Chart: S&P Global

The seasonally adjusted S&P Global/CIPS UK manufacturing Purchasing Managers’ Index (PMI) fell to a two-year low of 52.8 in June, down from 54.6 in May.

However, the reading has remained above the 50.0 mark, which indicates growth, since June 2020.

The data showed that manufacturing production rose for the 25th consecutive month in June, but that the rate of expansion was the weakest during the current upturn.

During the period there was a decline in new work intake for the first time since January 2021.

Companies said that the weaker economic outlook, reduced new export order intakes, slower growth of domestic demand, the war in Ukraine, raw material shortages, and the slowdown in China all contributed to the reduction in new work received.

Read more: FTSE heads lower after global stocks suffer worst first-half for decades

The consumer goods and intermediate goods sectors were hardest hit by the decline in new order inflows. In contrast, investment goods producers saw new work rise for the fifth month running.

New export orders contracted for the fifth month running in June, mainly reflecting the slowdown in China, rising economic uncertainty, the war in Ukraine and increased competition.

Some firms also noted that ongoing Brexit-related difficulties and weaker growth had impacted new order intakes from the EU.

Meanwhile, jobs growth was registered for the eighteenth successive month in June. Increased employment was linked to higher output, staff shortages and efforts to reduce backlogs of work, which fell for the second month running.

Watch: Minister describes UK's shrinking economy as 'disappointing'

“The manufacturing sector may not be the biggest in terms of the UK’s GDP contribution, but its importance may become more critical in the coming years and it needs a better trading environment than 2022 has offered so far,” Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said.

It came as manufacturing output across the eurozone fell for the first time since early 2020.

The S&P Global Eurozone manufacturing PMI showed that output declined for the first time in two years, with demand falling and backlogs of work down.

Growth slowed across euro area countries, with new orders and export demand both dropping, while business confidence slid to a 25-month low.

Read more: UK Infrastructure Bank has £5bn pipeline as investments kick off

Simon Jonsson, UK head of industrial products at KPMG, said: “The cost of living crisis is impacting UK manufacturers, slowing new order growth overall, with demand decline more acute for producers of certain goods.

“Raising consumer prices further in this landscape risks not only slowing consumer sales, but flatlining them. Manufacturers will find it even tougher to absorb rising energy, fuel and wage costs, without passing them on. This is a hard dilemma for any manufacturer to solve."

Watch: How does inflation affect interest rates?

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