Manufacturing fell in March, although fears the UK economy is entering a recession may be premature as inflation eased and average supplier lead times improved.
The seasonally adjusted S&P Global /CIPS UK Manufacturing Purchasing Managers’ Index fell to 47.9 in March, down from February’s seven-month high of 49.3 and an earlier flash estimate of 48.0.
The PMI has stayed below the neutral 50.0 mark for eight successive months.
Analyst said although the data allowed room for optimism the manufacturing sector was “not out of the woods just yet” although, March’s PMI suggests that the downturn now is bottoming out.
Gabriella Dickens, senior UK economist at Pantheon said that while the headline index remained below the 50.0 mark for the eighth month in a row, driven by a renewed decline in the output index to 49.0, from 50.9, the new orders index rose back above 50.0 for the first time since May 2022, reflecting a slight improvement in domestic demand.
She pointed out manufacturers also were the most upbeat about the 12-month outlook since February 2022. “
“Note, though, that manufacturing output still was boosted in March by the firms working through order backlogs; this support won’t last much longer.”
“Looking ahead, the near-term outlook for consumer demand has improved, following the government’s decisions to maintain both the Energy Price Guarantee and fuel duty at its current level in the Spring Budget, thereby averting a 1 per cent hit to real incomes.
“But business investment likely will remain weak this year, due to higher interest rates and the fact that the government’s announcement of full capital expensing in the next three years came too late to prevent investment from falling sharply at the end of the super-deduction policy.
“Accordingly, we think that manufacturing output will flatline over the coming months. and finished products were both depleted during the latest month.”
Rob Dobson, director at S&P Global Market Intelligence, said: “UK manufacturing production fell back into contraction at the end of the opening quarter, as companies scaled back production in response to subdued market conditions.
“Although total new orders saw a fractional increase, this followed on from a nine-month sequence of contraction and suggests that order book levels remain low overall.” He added that declining new export order intakes “remained a significant drain on demand, offsetting signs of a modest revival in the domestic market.
“There was better news on the price and supply fronts during March, however. Input price inflation hit its lowest level since June 2020. Although the index tracking selling prices also signalled a deceleration, it stayed at a higher level than its input costs equivalent to suggest some respite for manufacturers’ margins.
“Supply chains also continued to recover from the immense pressure experienced over the past three-and-a-half years, with March seeing average vendor lead times improve to the greatest extent during the 31-year survey history. This should hopefully filter through to further cost reductions and lessen the disruption to production workflows in coming months.”
Dr. John Glen, chief economist at the Chartered Institute of Procurement & Supply, said: “March was a month of two halves where supplier delivery times saw the biggest improvement for three decades but the continued weakness overall in new order levels, dragged manufacturers further back into the abyss of contraction.
“It was the continuing spartan landscape in terms of marketplace opportunity that was largely to blame. The small uplift in new homegrown orders had little effect with months of low demand to recover from and whilst exports continued to plummet affected by exchange rates.
“This is disappointing news for manufacturing companies still experiencing turbulent business times but optimism in the sector rose to the highest for 13 months. Careful planning around business costs and a close watch on the economy’s performance means that companies will be in a stronger position to take advantage of future opportunities.”
Dave Atkinson, SME & mid corporates head of manufacturing at Lloyds Bank, said manufacturers were walking a tightrope between growth and contraction.
“Cautious optimism is driving activity as recessionary fears ease. But the sector is still seeing inflationary pressures, which is having a disproportionate impact on SMEs.
“While larger firms have the spending power to bulk buy energy at lower rates, below where Government supports kicks in, SMEs generally do not share this advantage and therefore can end up paying considerably higher tariffs.”
“However, there is confidence from manufacturers of all sizes that inflation will move in the right direction, which should help the sector to edge back into growth soon.”