Overall conditions in the UK manufacturing sector remained weak in March. Output, new orders and employment dropped at historically marked rates and disinflationary pressures continued to build. However, indexes tracking production and new work rose sharply. Both regained much of the ground lost following the deepening of the manufacturing recession during Q4 in 2008. The seasonally adjusted CIPS/Markit Purchasing Managers' Index (PMI) posted a reading of 39.1 in March. Although still well below the neutral 50.0 mark, the current reading is the highest since last October.
Production fell for the eleventh month running, reflecting the continued weakness of both domestic and foreign demand. Total order books have now contracted for thirteen successive months – the most sustained period of decline since the survey began in January 1992. However, rates of decrease for both variables were noticeably slower than in February.
The downturn remained broad-based. Production and new business dropped in the capital, consumer and intermediate goods sectors and across small, medium and large sized producers.
Redundancy programmes and plant closures implemented due to the manufacturing recession resulted in further job losses in March. Workforce downsizing was again most prevalent amongst large companies. However, the overall rate of job losses moderated for the first time since employment started to fall in April 2008. Input costs and selling prices declined in March. Recent falls in global commodity prices and lower demand for raw materials exerted downward pressure on purchasing costs. Reduced selling prices were mainly linked to adverse market conditions, strong competition and falling input costs.
New export orders fell for the tenth successive month as companies reported lower demand from mainland Europe, the Republic of Ireland and East Asia. However, the rate of decline was slower than in the previous month as some firms indicated that the weak sterling exchange rate mitigated some of the worst effects of the global downturn on export volumes.
UK manufacturers continued to unwind their inventory levels in March as stocks of purchases and finished goods were depleted at survey record rates. Average vendor performance showed a further marked improvement, reflecting a substantial decrease in purchasing activity.
Roy Ayliffe, Director at the Chartered Institute of Purchasing & Supply, said: “UK manufacturers voiced a sigh of relief as March PMI data posted its highest reading since last October.
“PMI indexes for output and new orders approached levels seen just before the global recession took its deepest plunge and nosedived around the time Lehman Brothers collapsed. Coupled with this, March probably saw firms dismiss staff at a slower rate of around 20,000 to 25,000 a month – considerably less than the 30,000 in January.
“However, with purchasing managers still concerned over falling levels of production and weak demand, it's clear we aren't out of the woods yet. If anything, latest data serves to highlight how badly the sector faired around the turn of the year.”
Rob Dobson, Senior Economist at Markit Economics said: “The substantial gains in the output and new orders indexes are heartening and, if these can be sustained during the coming months, raise hopes that manufacturers are past the worst. However, we are still a long way off levels associated with an outright recovery and conditions remain fragile overall. Cost cutting and restructuring are still at the forefront of manufacturers' minds, with latest PMI data pointing to historically rapid reductions in employment and unprecedented unwinding of inventory positions.”
The CIPS/Markit UK Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 600 industrial companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on the regional, and industry contribution to GDP.
