Manufacturing output hit a three-month low in August, a new survey has suggested, after early signs in the summer indicated the sector was on a path to recovery.
The Labour government is determined to deliver higher growth, with strategy papers outlining plans to boost production across the UK by lowering energy costs.
But new purchasing managers’ index (PMI) data published by S&P Global has pointed to a downturn in the manufacturing sector as it faces higher costs on payroll budgets and in raw materials.
The survey showed that firms had seen output levels fall below levels seen in June and July as a reading of 47, which is below the 50-figure mark for neutrality, disappointed economists.
“August’s final S&P Global manufacturing survey provided further signs that the sector appears likely to continue to underwhelm,” EY ITEM Club’s Matt Swannell said.
“The weaker outturn reflected another modest decline in production, while new orders deteriorated further as downbeat customer confidence and elevated trade policy uncertainty reportedly weighed on demand both domestically and in key export markets.”
Swannell added that it was “far from guaranteed” that the survey results would translate into official manufacturing output data given data by the Office for National Statistics (ONS) had consistently outperformed PMIs.
Manufacturers responding to S&P Global’s survey pointed to the damage of low client confidence and higher costs created by Rachel Reeves’ employment tax raid and a hike to minimum wages.
Job losses were recorded for the tenth consecutive month, according to researchers.
Manufacturing sector taking ‘one step back’
Business optimism increased slightly in August but remained below a long-run average, analysts also said.
Manufacturers which expected output to drop over the next 12 months said they were more fearful about taxes edging up and higher energy bills, which could hinder UK companies’ competitiveness.
Economists at the leading industry body Make UK said quiet summers were “not uncommon”, with more firms drawing up plans for the next year to boost growth.
“Despite the appearance of weakening business conditions, the recent slowdown closely reflects businesses carefully reviewing their growth plans following the announcement of the government’s industrial strategy,” Fhaheen Khan, a senior economist at Make UK, said.
“This is a classic case of taking one step back, so businesses can take two steps forward.”