Engineering news
The Markit/CIPS Flash Purchasing Managers Index (PMI) has revealed that the UK manufacturing output has fallen to a 41-month low of 49.1 following the EU referendum.
The monthly flash survey signalled a 0.4% contraction of the economy in the third quarter, the steepest contraction since 2009.
Brexit has also knocked service providers’ optimism about the upcoming 12 months, which has slumped to a seven-and-a-half-year low.
Similarly, Markit/CIPS UK Flash Composite Output Index fell to 47.7 in July, compared to 52.4 in June, the lowest reading since April 2009.
The weaker performance of the UK economy during July was said to be especially striking when looking at the month-on-month movements in the index levels.
The Composite Output and the Composite New Orders indices fell by 4.7 and 6.8 points respectively since June, the steepest drops in registered services history.
Output and new orders fell in both the manufacturing and services sectors during July. A number of firms linked this to ongoing uncertainty pre- and post-EU referendum.
Manufacturing output and new orders both fell for the first times since the opening quarter of 2013. However, new export business rose for the second straight month and to the greatest extent for almost two years. This was mainly linked to the sharp drop in the sterling exchange rate.
The downside of the exchange rate was a steep rise in manufacturers’ input prices, mainly due to higher import costs. The rate of purchase price inflation hit a five-year record, with the extent of the acceleration among the steepest in the PMI survey history.
Cost caution at manufacturers was not only reflected in hiring decisions, but also in the steepest reduction in purchasing activity since March 2013 and a further depletion of stock holdings. Meanwhile, weaker demand and depletion of backlogs of work in both sectors suggest further job losses may occur in coming months.
Factory gate price inflation reached a 23-month high as companies passed on part of the surge in purchasing costs.
Chris Williamson, chief economist at Markit, which compiles the survey, said: “July saw a dramatic deterioration in the economy with business activity slumping at the fastest rate since the height of the global financial crisis in early-2009.
“The downturn, whether manifesting itself in order book cancellations, a lack of new orders or the postponement or halting of projects, was most commonly attributed in one way or another to Brexit.
“The one ray of light was an improvement in manufacturing export growth to the best for two years as the weak pound helped drive overseas sales, though producers also suffered the flip-side of a weak currency as import prices spiked higher.”
He added that the slump in the PMI will provide a “powerful argument” for policymakers to take swift action.
Zach Witton, deputy chief economist at EEF, the manufacturers organisation, said: “The very sharp pause in activity indicates that manufacturers have reacted to the shock of the referendum result by adopting a wait-and-see approach.
"A key question is how long this will be sustained, as a failure to restart activity will have implications for their appetite for investment and recruitment, and thus have an implication for the real economy.
The uncertainty surrounding the outlook for manufacturing highlights that there is potential for the government to shore up confidence in the coming months.”