U.K. Manufacturing Sector growth slows in September, prompting manufacturers to lay off workers, against backdrop of uncertain global outlook. Eurozone manufacturing also lost momentum and output from Chinese factories continued to fall…
Tough export markets and weaker consumer spending continued to take their toll on UK factories last month, prompting the first job losses for the sector in more than two years, according to a survey that echoed signs of manufacturing weakness around the world.
The performance at UK factories was lacklustre in September, when growth slipped to a three-month low. Against the backdrop of warnings about the uncertain outlook for global growth, eurozone manufacturing also lost momentum and output from Chinese factories continued to fall.
For the UK, the first snapshot of manufacturing performance in September continued a downbeat trend. The key measure of factory activity slipped back to within a whisker of June’s two-month low, according to the Markit/CIPS manufacturing PMI report.
At 51.5 the main balance was still above the 50-mark that separates growth from contraction, but it marked a slowdown from 51.6 in August and economists said it would further convince policymakers at the Bank of England to hold off from raising interest rates from their current record low of 0.5%.
The survey reported manufacturing job losses for the first time since April 2013.
“Job cuts send a signal that manufacturers are becoming more cautious about the future, which may lead to a further scaling back of production at some firms in coming months,” said Rob Dobson, senior economist at Markit.
“The ongoing malaise of the manufacturing sector will add to broader growth worries and supports dovish calls for a first rise in interest rates to be held off until the industry returns to a firmer footing.”
The manufacturing sector has been growing for 30 months, according to the survey, but the pace has slowed since the start of the summer. While output growth improved slightly last month, growth in new orders tailed off to the weakest rate seen this year.
Manufacturing growth across the eurozone slowed to a five-month low, according to separate reports from Markit. Its factory PMI for the currency bloc slipped to 52.0 from 52.3 in August. Activity slowed in Germany and Spain, while the French factory sector is expanding again.
The slump at China’s factories also continued, but there were some signs of stabilisation. The Caixin China general manufacturing PMI found that production was still falling, forcing firms to lay off more people. The official manufacturing PMI published by the Beijing government also showed that manufacturing was still contracting, but at a slower rate.
Economists drew links between China’s downturn and the pressures on UK manufacturers already grappling with a relatively strong pound, which makes their goods more expensive to overseas buyers.
“Manufacturing continues to face headwinds from weaker demand from China and emerging markets – where the UK sends up to 15% of its exports – in addition to strength in sterling which is up 15% in effective terms compared to its February 2013 low,” said Kallum Pickering, senior UK economist at Berenberg bank.
He saw little prospect of manufacturing having boosted the wider economy in recent months but was optimistic EU and US demand would help the sector.
“For now, UK manufacturers might see export demand dwindling as the developing world struggles with slowing Chinese demand and weak commodity prices, but in the medium term rising demand from the UK’s biggest and closest trading partners should help underpin a recovery in UK manufacturing,” Pickering added.
Separate UK figures on productivity also pointed to recent weakness in the manufacturing sector. There was a 0.5% fall in factory output per hour in the second quarter, bucking the improving trend for the wider economy, according to the Office for National Statistics (ONS).
Across all sectors, productivity grew by 0.9% from the first to the second quarter on an output per hour measure. That took productivity to the highest level on record, but it was still 15% below where it would have been had pre-downturn trends continued, the ONS said.
Zach Witton, a deputy chief economist at EEF, the manufacturers’ organisation, said: “Today’s data suggests the challenging export environment and weak demand for investment goods in the oil and gas sector has started to take a toll on business confidence.”
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