IHS Markit/CIPS UK Manufacturing PMI: record stockpiling at UK manufacturers as Brexit preparations continue
01 February 2019
The IHS Markit/CIPS UK Manufacturing PMI dipped to a 3-month low of 52.8 in January 2019. Other key findings included stocks of purchases rising at a survey-record rate and employment falling for only the second time in the past 30 months.
The manufacturing sector made a lacklustre start to 2019, as trends in output and new orders slowed, and employment fell for only the second time in the past 2½ years. Companies reported that Brexit preparations led to sharp rises in both purchasing activity and stockpiling of inputs at warehouses.
The headline seasonally adjusted IHS Markit/CIPS Purchasing Managers’ Index (PMI) – which provides a single-figure tracker of the performance of the sector – fell to a 3-month low of 52.8, down from 54.2 in December – and its second-weakest reading in almost 3 years, since July 2016 (the first survey month following the EU referendum result).
The trend in production volumes was the weakest registered during the past 2½ years. Although output rose solidly at consumer goods producers, this was largely offset by weaker expansion in the intermediate goods sector and the first decline in investment goods output since July 2016.
With January also seeing a marked slowdown in the rate of expansion in new order inflows, companies reporting an increase in output mainly linked this to stock-building activity. Inventories of finished goods rose at the third-fastest rate in the survey history, bested only by those seen in May and December of 2018.
Regarding the trend in demand, the rate of increase in new work from domestic sources eased, and growth of new export business slumped to near-stagnation. Where growth of new orders was reported, this often reflected clients purchasing to build up stocks in advance of Brexit. The slight increase in foreign demand was linked to higher inflows of new work from the USA, Europe, Brazil and Canada.
Sector data signalled that new business inflows decreased in both the intermediate and investment goods industries. In contrast, consumer goods producers continued to see solid growth in total new work received.
Brexit preparations were also a major contributing factor underlying the trends in input buying activity and stocks of purchases. Inventory holdings increased at the fastest pace in the 27-year surve history, as purchasing volumes expanded to the greatest extent since November 2017.
Higher demand for raw materials, along with input shortages and supplier capacity issues, led to a further marked lengthening in average vendor lead times during January. Inflation of input prices eased to a 32-month low, despite higher raw material costs, suppliers raising their prices and the exchange rate. Average selling prices also increased at a slower pace.
The outlook for the UK manufacturing sector remained positive in January, with almost 46% of companies reporting they expect output to be higher one year from now. However, Brexit uncertainty, the exchange rate and signs of a European economic slowdown all weighed on sentiment. The overall degree of positive sentiment dipped to a 30-month low.
Rob Dobson, Director at IHS Markit, which compiles the survey:
“The start of 2019 saw UK manufacturers continue their preparations for Brexit. Stocks of inputs increased at the sharpest pace in the 27-year history, as buying activity was stepped up to mitigate against potential supply-chain disruptions in coming months. There were also signs that inventories of finished goods were being bolstered to ensure warehouses are well stocked to meet ongoing contractual obligations.
“Despite the temporary boost provided by clients’ pre-purchases and efforts to build-up stocks, the underlying trends in output and new orders remained lacklustre at best. Growth of new order inflows slowed sharply, and new export orders were near-stagnant, contributing to the weakest trend in output since the month following the EU referendum (July 2016). Based on its historical relationship against official data, the January survey is consistent with a further solid contraction of production volumes, meaning manufacturing will likely act as a drag on the economy in the first quarter.
“January also saw manufacturing jobs being cut for only the second time since mid-2016, as confidence about the outlook slipped to a 30-month low, often reflecting ongoing concerns about Brexit and signs of a European economic slowdown. With neither of these headwinds likely to abate in the near-term, there is a clear risk of manufacturing sliding into recession.”
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply:
“Brexit blight strikes again with the weakest performance in manufacturing production since July 2016 and optimism withers away under the weight of uncertainty as the UK teeters on the edge of departure from the EU.
“Businesses did their best to develop forward purchasing programmes, to avoid potentially disappointing clients, and in case of a bad Brexit outcome, with some of the sharpest rises in raw materials and finished goods stockpiling since the survey started in January 1992. Supply chains were closer to breaking point, with stretched capacity and delivery times lengthening again for the 33rd month. This begs the question of how much longer suppliers can deliver and businesses can retain stocks for every eventuality.
“After months of maintained job creation, job seekers will be disappointed by the drop in new roles as businesses fought hard to control costs and improve efficiency. Without a strong upturn in new orders and underlying growth, there may be further hesitation to hire next month, and with a general slowdown in the global economy and the Eurozone, we’re likely to continue to see significant challenges ahead.”
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