Downturn of UK manufacturing slowed in April, but further substantial job losses are recorded

Key points:

*          Marked easing in rates of contraction for output and new orders.

*          Cost considerations drive further cuts in employment and inventories.

*          Output prices drop at survey record pace.


The UK manufacturing recession continued in April. Companies faced declining new order volumes leading many to scale back production further. However, latest data indicated that the rates of contraction for both output and new work eased noticeably over the month.

The seasonally adjusted CIPS/Markit Purchasing Managers Index (PMI) rose to 42.9 in April. Despite remaining below the neutral 50.0 mark for the thirteenth month running, the PMI moved further from Februarys joint survey record low.

Sector data indicated that the investment goods sector was the poorest performer amongst the market groups covered by the survey.

UK manufacturers maintained a generally cautious approach in April, as global market conditions remained difficult and competitive pressures were again strong. The tough operating environment was reflected in firms efforts to trim excess capacity, cut non-essential expenditure and adjust stock holdings. Confidence amongst clients also remained subdued, leading to the cancellation, postponement or reduction of planned or agreed expenditures.

A combination of lower demand and stock depletion led to a reduction in output for the twelfth successive month in April. Stocks of finished goods declined at the joint second-fastest rate in the survey history and holdings of input inventory also fell sharply. Companies indicated that stocks were being reduced in line with lower production requirements and to control warehousing and purchasing costs.

April saw a substantial reduction in manufacturing employment, with over one-third of companies reporting job losses. Large-sized companies continued to cut staffing at a faster rate than SMEs. Although still marked, the rate of decline in employment eased to its weakest in the year-to-date.

Disinflationary pressures were still prevalent in the manufacturing sector during April. Output prices fell at a series record pace, while input costs dropped to the greatest extent since February 2002.

April data pointed to a stabilisation of foreign demand for UK manufactured goods. New export orders were broadly unchanged from one month earlier. The sterling exchange rate was the main factor boosting competitiveness abroad. Although firms indicated that conditions in foreign markets were not generally conducive to sales growth the situation was reported to be less restrictive than in recent months.


Roy Ayliffe, Director at the Chartered Institute of Purchasing & Supply, said: Although April saw some reprieve for the UK manufacturing sector, we are still far away from a turn-around and the industry is firmly embedded in the trenches of the recession. A noticeable easing in the rate of contraction for output and new orders was welcomed. But, purchasing managers noted depleted stocks as increasing the risk to supply chains, and tough trading conditions with ongoing cuts continue to bleed UK firms dry. As a result, over a third of firms were forced to streamline staff as they continue to operate on very tight margins.

Rob Dobson, Senior Economist at Markit Economics said: That the latest readings will be met with more hope than despair shows just how bad conditions had become for UK manufacturing. Although still historically low, the PMI came in above expectations. The output and new orders indexes may still be a long way off recovery levels, but have posted substantial gains in each of the past two months. Further signs export demand is stabilising on the back of the weak pound will also be welcomed by manufacturers. However, caution remains the main watchword for manufacturers, reflected in efforts to trim excess capacity, cut costs and reduce inventory holdings. The labour market is still very weak as well, with further substantial job losses reported in April.

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