UK manufacturing slumps due to slowdown in new orders

A worker cuts newly manufactured bars of steel at UK manufacturing site
UK manufacturing: New order growth this month was the weakest since March 2021: Photo: Reuters/Phil Noble

UK manufacturing firms have been hit by a slowdown in demand and new orders amid a looming recession, new data showed on Thursday.

According to S&P Global’s survey, June’s overall composite PMI index, which tracks activity in the economy, was unchanged at 53.1, however, new order growth this month was the weakest since March 2021.

The new order index fell to 50.8, showing near-stagnation. Any reading over 50 indicates growth.

The data also indicated that the British economy was “running on empty” as business confidence fell to levels that typically signal a recession.

Read more: What is stagflation and can it lead to a recession?

It slumped to its weakest since May 2020, as firms fretted about customers cutting back on spending due to the current cost of living crisis, and the impact of runaway inflation on the longer-term economic outlook.

The business expectations index fell by 4.6 points in June, which was the largest monthly decline since the start of the COVID-19 pandemic. Both manufacturers and service providers reported the lowest degree of business optimism since May 2020.

Despite weaker new business growth, the latest survey signalled a robust and accelerated rise in staffing numbers.

Read more: Is the UK heading into a recession?

Job creation was the fastest for three months, led by stronger hiring in the service sector.

Higher levels of employment reflected efforts to fill vacancies, meet increased business requirements and process unfinished workloads.

But survey respondents continued to report considerable difficulties with finding suitable candidates to replace departing staff.

Watch: Minister describes UK's shrinking economy as 'disappointing'

Firms also kept raising their own prices, as they passed on higher energy, fuel and wage costs to customers. Companies reported rising pay pressures and increasing worries about fuel and energy bills.

“The economy is starting to look like it is running on empty,” Chris Williamson, chief business economist at S&P Global Market Intelligence said.

“Current business growth is being supported by orders placed in prior months as companies report a near-stalling of demand. Manufacturers in particular are struggling with falling orders, especially for exports, and the service sector is already seeing signs of the recent growth spurt from pent-up pandemic demand move into reverse amid the rising cost of living.”

He added: “Business confidence has now slumped to a level which has in the past typically signalled an imminent recession. The weakness of the broad flow of economic data so far in the second quarter points to a drop in GDP which the forward-looking PMI numbers suggest will gather momentum in the third quarter.

Read more: FTSE falls as inflation drives up UK debt costs

“While there are some signs that the inflation could soon peak, the survey data suggest the rate of inflation will meanwhile remain historically high for some time to come, indicating that the UK looks set for a troubling combination of recession and elevated inflation as we move into the second half of the year.

Meanwhile, Peter Colman, partner at global consultancy Simon-Kucher & Partners, said: “Another disappointing flash PMI for the UK this morning … It’s becoming increasingly obvious that UK businesses in the manufacturing and services sectors are caught between a rock and a hard place.

“With unprecedented levels of inflation, slowing volumes and recession fears, implementing price increases is the only viable option to address margin erosion – a solution that many businesses have been desperate to avoid but may no longer be able to do so.

“With no obvious end in sight, the agenda within many UK boardrooms is turning from growth to profitability.”

Watch: How does inflation affect interest rates