Output from Britain’s factories fell at the fastest pace for more than seven years as new orders dried up and manufacturers ran down stocks they had built up to hedge against the UK crashing out of the EU.
The steepest falls were among companies reliant on investment and business-to-business spending. IHS Markit, which compiled the survey for the Chartered Institute of Procurement & Supply (CIPS), said UK manufacturing remained too reliant on consumer spending.
Its monthly survey of factory managers, the first piece of UK economic news in 2020, showed the index fell to 47.5 in December, the fastest pace of contraction since July 2012. Any number below 50 signifies contraction and the index has now been below that point for eight months in a row.
“The pace of manufacturing’s decline in December will set alarm bells ringing,” said Duncan Brock, group director at CIPS. “Production levels sank at their fastest levels since July 2012 and with no sign of immediate recovery in sight.”
The level of new work received declined for the eighth successive month in December as inflows weakened from both domestic and overseas clients.
Managers linked the falls in new business to ongoing concerns surrounding the economic, global trade and political outlook. New export business fell for the second month running.
The drop in activity has fed through to job numbers as manufacturers cut employment for the ninth month in a row.
Job losses were registered across the consumer, intermediate and investment goods sectors and at companies of all sizes.
“This impact trickled down to job creation strategies, as the pace of job losses intensified and companies were reluctant to commit to additional expense,” Mr Brock said.
Mr Brock said although the result of the general election would bring some “clarity” to businesses, he warned that manufacturers faced a long road ahead to recover last year’s losses. “In the closing stages of the year, the sector has ended on a dreary note,” he said. “There will still be some obstacles to overcome in 2020.”
Fhaheen Khan, senior economist at Make UK, the manufacturing and engineering employers’ organisation, said uncertainties over the outcome of Brexit, the outcome of the general election, and global trade tensions had “clearly weighed on” the UK’s manufacturing sector.
However, CIPS said business sentiment remained positive in December with more than 43 per cent of companies forecasting output would be higher a year from now, compared to only 10 per cent anticipating a contraction. The optimism was linked to reduced uncertainty, new product launches, increased efficiency and improved client confidence, it said.
The downbeat picture was reflected in the eurozone where the equivalent index dropped from 46.9 in November to 46.3 in December, marking an eleventh successive month of contraction. Germany was again the weakest-performing country, while the deteriorations seen in Italy and the Netherlands were the sharpest in more than six and a half years.