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Manufacturing PMI dips as stock building eases, but worries
mount for future production
Exporters of inputs see EU supply chain shift
Staff hiring hit by uncertainty
The IHS Markit/CIPS UK Manufacturing PMI indicated that output
growth slowed in April, despite some firms reporting a boost to
production from pre-Brexit stock building. Worse may be to come, as
forward-looking indicators suggest production could fall in coming
months as the inventory build unwinds and supply chains shift.
Hiring has already been hit as a result.
The survey's output index fell from a 10-month high in March,
partly because fewer customers built up safety stocks ahead of a
potentially disruptive Brexit, though many companies continued to
report that stock piling helped drive production higher.
One-in-five companies that reported an increase in production in
April attributed the rise to Brexit related stock piling. However,
that was down from one-in-three in March.
The worry is that the unwinding of recent inventory building is
likely to act as a drag on production growth in coming months, as
illustrated by the forward-looking new orders to inventory ratio. A
record increase of stocks in recent months has coincided with a
dearth of new orders, pushing the orders-inventory ratio to its
lowest since May 2012, and its third-lowest since the height of the
global financial crisis in early-2009. At current levels, the ratio
points to a marked downturn in production.
However, not all sectors have benefited equally from the
Brexit-related stock build. UK producers of consumer goods and
investment goods (such as equipment and machinery) have seen a
Brexit boost from stock piling by overseas customers, thereby
lifting exports in recent months (albeit with some tail-off seen in
April). In contrast, exports of intermediate goods (products used
as inputs by other companies) have fallen continuously since the
middle of last year, in part due to EU customers now sourcing from
non-UK EU suppliers.
The employment index from the manufacturing PMI is another point
of concern, suggesting factories have pulled back markedly on
hiring over the past year. Having signalled buoyant jobs growth
this time last year, the survey is now consistent with the official
measure of manufacturing payroll numbers falling.
Chris Williamson, Chief Business Economist, IHS
Markit
Tel: +44 207 260 2329
chris.williamson@ihsmarkit.com
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
