UK manufacturing PMI beat expectations increasing to 48.3 in September and pushing the pound higher. However, the pound’s lift might be short lived as the data also indicated that signs of a recession are highly likely. Most importantly, UK factories are cutting jobs at the fastest pace in six years, despite companies stockpiling.
Brexit and ongoing economic uncertainty, the weak European economy and the trade war between the US and China are some of the key factors impacting on the UK manufacturing sector.
Manufacturing data in detail
The IHS Markit/CIPS UK Manufacturing and Purchasing Managers’ Index (PMI) showed that the UK manufacturing sector continued its downturn, albeit not as bad as the previous month. Stocks of purchases and input buying volumes rose as companies resumed their preparations for the latest Brexit deadline on 31 October. However, levels of output, new orders, new export business and employment fell further, compared to the previous month.
With companies experiencing a reduction in new orders, output was cut back, while the investment goods sector performed the weakest due to lower output and new business. Brexit affected capital expenditure as clients were reluctant to commit due to political uncertainties.
In September, the consumer goods sector rose, but both consumer goods and production sectors’ outlook was negative, with new work intakes decreasing.
Brexit uncertainty as well as clients redirecting supply chains away from the UK impacted on new export business. This along with the general decrease in manufacturing affected the labour market as companies reported redundancies and job losses across the consumer, intermediate and investment goods industries and at SMEs and bigger producers.
Brexit was also the motivation behind manufacturers’ increased purchasing and stockpiling. In this sense, optimism remained low as continued Brexit insecurities made any forecasting impossible.
Rob Dobson, Director at IHS Markit, confirmed that the “UK manufacturing downturn continued in September, adding to signs that the sector may be sliding into recession.” He also added that: “Some manufacturers noted increased inventory building activity in preparation for the forthcoming exit date, but the impact of such Brexit-related stock building was dwarfed by weakening demand for other customers, due in part to clients routing supply chains away from the UK.” For Dobson, “The shroud of uncertainty also weighed on manufacturers' confidence, which remained at one of its lowest ebbs in the survey history. These headwinds all ensure that manufacturing will likely remain a drag on UK economic growth during the months ahead.”
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply, noted that “Businesses were less hopeful about the strength of the marketplace in generating manufacturing growth in the coming months as new orders continued to fall away, and business optimism remained at lower than average levels in all three sub-sectors.” As a result, “European clients became more resigned and made concrete plans to move away from UK suppliers and business closer to home seemed more reliable. This exhausting set of conditions meant companies shed jobs at a rate not seen since 2013 as redundancy packages were prepared and new staffing plans abandoned.”
What’s to come
On Wednesday, Boris Johnson is expected to submit his proposals to an alternative to the Irish backstop, with political and financial analysts turning their attention back to Brexit. While impossible, any positive response from the EU might lift the pound a little bit higher.
If you are importing from, or exporting to, the European Union, political uncertainty greatly impacts on currency movements and significantly affects your cross-border currency transfers. Get in touch with a currency specialist such as Universal Partners FX and find out how they can help you. UPFX is the best option for foreign exchange services, helping companies make regular payments while hedging their business from the risks of currency volatility. With Brexit looming and the manufacturing sector slowing down, protecting your funds with the help of a currency specialist is the best way to safeguard your business and funds.