Press release

3 Dec 2019

November purchasing managers survey revised up, but still points to manufacturing sector’s woes deepening amid heightened uncertainty

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EY UK

Multidisciplinary professional services organisation

The final November manufacturing purchasing managers’ survey was better (or less bad) than the “flash” report, but still pointed to a sector currently struggling in the face of a number of uncertainties (Brexit, domestic political, global economic and trade) with domestic and foreign demand both pressurised.

  • The weakness was reported most pronounced in the investment goods sector, adding to the evidence that business continue to hold back on investment amid a number of uncertainties and a currently struggling economy.
  • One encouraging sign was that there were “brighter signs from the consumer sector” raising hopes that consumer resilience can continue and support the economy. Consumers have benefitted from elevated employment and significantly increased purchasing power, although there have recently been signs that the fundamentals for consumers may have been as good as they are going to get for a while with employment and earnings growth both recently coming off their highs around July. 
  • There was a significant upward revision to the final November manufacturing PMI reading to 48.9 from the “flash” estimate of 48.3.
  • The survey indicated that manufacturing activity contracted for a seventh month running in November and at an increased rate as there was an unwinding of the stockbuilding that had provided some lift to activity in October (ahead of the previously scheduled end-month Brexit date).
  • Not only was manufacturing output reported to have fallen at an increased rate in November, but another drop in new orders bodes ill for output prospects in the near term at least.
  • Manufacturers’ prices charged rose at the second slowest pace for three-and-a-half years in November, indicating a perceived need to price competitively to try and gain business. At least manufacturers were helped by their input prices falling marginally.
  • The survey added to the evidence that the UK labour market is now buckling after impressive resilience. Manufacturing employment contracted for an eighth month running in November, and at the fastest rate since September 2012.
  • The purchasing managers’ surveys have tended to present an overly gloomy picture at times of heightened political uncertainty. But the headwinds facing manufacturers suggests that the near-term at least will remain very difficult for the sector.
  • Manufacturers have clearly taken a hit from prolonged Brexit uncertainty, which is extending business caution over investment decisions and the purchase of capital goods. Meanwhile, there are signs that consumers have recently become more cautious in their spending and are particularly wary over making big-ticket purchases.
  • On the export front, manufacturers are being hampered by slower global growth. Global trade conflicts and tensions are also a concern for UK manufacturing exporters.
  • UK manufacturers could be impacted by EU companies switching supply chains away from the UK. This may be countered though by UK companies switching their supply chains from the EU to the UK.
  • Manufacturers will no doubt be hoping that the uncertainties surrounding the economy are diminished by the UK leaving the EU with a “deal” on 31 January and a decisive General Election result – and that this encourages businesses to step up their investment and demand for capital goods and consumers to become more willing to splash out on big-ticket durable goods.
  • However, a concern for manufacturers is that still significant Brexit concerns along with a challenging global environment may well limit the upside for investment in 2020 while consumers may well face less favourable fundamentals due to a softer labour market and reduced earnings growth.

Howard Archer, chief economic advisor to the EY ITEM Club, comments: “The final purchasing managers’ survey pointed to manufacturing activity contracting for a seventh month running in November and at an increased rate compared to October when activity had been boosted by increased stockbuilding of inputs and finished products ahead of the scheduled 31 October date for Brexit.  

“Domestic demand for manufactured goods has been hampered by businesses' caution over investment amid a number of uncertainties (Brexit, domestic economic and political, global economic) which is limiting expenditure on capital goods. There are also signs that consumers have recently become more cautious over making big-ticket items.

“Meanwhile, weakened global growth and an uncertain trading environment is weighing down on foreign demand for UK manufactured goods.

“Specifically, the PMI dipped to 48.9 in November (revised up significantly from the “flash” estimate of 48.3) after rising to a six-month high of 49.6 in October from 48.3 in September and 47.4 in August (the lowest level since May 2012). November’s reading of 48.3 took the PMI further below the 50.0 level which indicates unchanged activity.

“The weakness was reported most pronounced in the investment goods sector, adding to the evidence that business continue to hold back on investment amid a number of uncertainties and a currently struggling economy.

“One encouraging sign was that there were “brighter signs from the consumer sector” raising hopes that consumer resilience can continue and support the economy. Consumers have benefitted from elevated employment and significantly increased purchasing power, although there have recently been signs that the fundamentals for consumers may have been as good as they are going to get for a while with employment and earnings growth both recently coming off their highs around July.

November survey largely weak across the board

“Output contracted for a seventh month running in November and at a slightly faster rate. This was the consequence of reduced orders and efforts to reverse high stock levels.

“New orders also contracted for a seventh successive month in November, although at the slowest rate for six months. Orders were affected by reported destocking by clients after the delay to Brexit. Political, economic and global trade uncertainty weighed on demand. Export orders fell at one of the sharpest rate for seven years.

“There was also a drop in employment for an eighth month running and at the sharpest since September 2012.

“Stocks of finished products fell at the fastest rate in more than two-and-a-half years.

“Input buying volumes fell at one of the sharpest rates since 2013 after they had been built up in advance of the scheduled 31 October Brexit date.

“Price pressures were limited in the manufacturing sector in November. Input prices fell marginally in November for the first time since March 2016; output prices increased at the second slowest rate since June 2016.

Manufacturing output was only flat over third quarter after September contraction

“Latest ONS data show that manufacturing output disappointingly contracted 0.4% month-on-month and was down 1.8% year-on-year in September. The weakness was pretty widespread with eight of the 13 manufacturing sub-sectors suffering contraction in September, with the sharpest drop occurring in pharmaceutical products.

“Consequently, manufacturing output was only flat quarter-on-quarter in the third quarter when it was down 1.4% year-on-year. The sector had less help than had been expected by car manufacturers bringing forward their summer shutdowns to April due to Brexit factors. Indeed, a number of car plants still shut down in August.”