Manufacturing downturn continues as clients cut costs

Activity for UK manufacturing firms fell last month in the face of subdued demand and customers cutting costs, according to an influential survey.

The S&P Global/CIPS UK Manufacturing PMI fell to a three-month low of 47.8 in April, down slightly from the 47.9 scored in March.

Any score below 50 is considered a decline for the sector.

It marked a continuation of the downturn in the hard-hit sector which has been in contraction territory since August, when surging inflation and economic uncertainties saw new orders plunge.

Manufacturers reported a reduction in output and clients placing new orders for work last month, as customers looked to reduce stock and cut costs.

Rob Dobson, director at S&P Global Market Intelligence, said: “The UK manufacturing sector remained in the doldrums at the start of the second quarter.

“Output and new orders contracted as manufacturers felt the impacts of client uncertainty, destocking and tightening cost controls.

“There was no escape from the subdued mood of the market, with both domestic and export customers remaining reticent to commit to new contracts.”

However, April’s score came in above the previous flash estimate of 46.6, and the rate of contraction was mild, the report said.

There were also glimmers of hope in the sector with optimism rising to a 14-month high among manufacturers, as more than 60% of firms said they expect output to increase during the coming year.

The positive sentiment was felt in investment spending, new product launches, and forecasts of improved market conditions.

Furthermore, supplier delivery times shortened for the third month in a row in April as supply chain pressures eased further and backlogs and bottlenecks were cleared.

Mr Dobson added: “There may be some light on the horizon, as manufacturers remain stoically optimistic about the outlook for the year ahead.

“But demand will need to pick up in the months ahead to warrant any increase in production and, with the UK seeing stubbornly high domestic inflation coupled with a worsening export trend, risks seem skewed to the downside.”

Gabriella Dickens, a senior UK economist for Pantheon Macroeconomics, said the sector is “not out of the woods yet” despite the cheerier outlook from businesses.

“The extra support to households’ incomes in the spring Budget, the announcement of full expensing capital allowances for businesses, and China’s reopening probably are helping to brighten the mood,” she said.

“But we still think that a material recovery in demand is several months away.”

Manufacturers are likely to see consumer demand for goods recover only slowly, as employment is set to flatline and higher mortgage rates chip away at household incomes, Ms Dickens added.