Press release

1 Oct 2020 London, GB

Purchasing managers report UK manufacturing activity came off August high in September – EY ITEM Club comments

Softer news for the economy at the end of Q3 as the purchasing managers reported the manufacturing sector came slightly off August’s 30-month high.

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Related topics Growth COVID-19
  • Softer news for the economy at the end of Q3 as the purchasing managers reported the manufacturing sector came slightly off August’s 30-month high. Nevertheless, manufacturing activity remained at a decent level in September
  • The manufacturing PMI dipped to 54.1 in September (revised down slightly from the ‘flash’ reading of 54.3) after rising to 55.2 in August from 53.3 in July
  • Most elements of the survey were healthy in September, with new orders at an elevated level (helped by export orders at a 21-month high) and confidence decent despite some increased uncertainties over Brexit and COVID-19
  • Employment in the manufacturing sector fell for an eighth month running, but at the lowest rate since February. The ongoing decline in jobs provides context for the Chancellor’s further support for the labour market with the recently announced Jobs Support Scheme
  • Despite a slight slowdown from August, September results back up belief that the economy saw a substantial rebound in Q3 after GDP contracted a record 19.8% quarter-on-quarter in Q2. The EY ITEM Club suspects GDP growth was at least 15% quarter-on-quarter in Q3, and could have around 17% quarter-on-quarter
  • However, the EY ITEM Club believes that Q4 will be more challenging for the UK economy and growth may be limited. This will be due to a likely significant rise in unemployment, the waning of pent-up demand, and increased restrictions on activity due to rising COVID-19 cases
  • Additionally, business caution and reluctance to invest in Q4 may be increased by uncertainties over the future UK-EU trading relationship

Howard Archer, chief economic advisor to the EY ITEM Club, says:

“The purchasing managers survey pointed to manufacturing expansion losing a little momentum in September after reaching a 30-month high in August. Nevertheless, the sector achieved a fourth month of growth and at a still decent rate.

“The PMI dipped to 54.1 in September (revised down slightly from the ‘flash’ reading of 54.3) after rising to 55.2 in August from 53.3 in July, 50.1 in June, 40.7 in May and a record low of 32.6 in April. It had previously fallen to April’s low from 48.0 in March and 51.7 in February, which had indicated the first expansion since April 2019.

“September’s reading of 54.1 kept the PMI appreciably above the 50.0 level, which indicates unchanged activity.”

Output growth and new business expansion

Howard Archer continues: “Output continued to grow at a rapid rate in September and was not far below August’s strongest reading since April 2014. Solid growth was reported across the intermediate (which led the way), consumer and investment sectors.

“New business growth also slowed slightly after hitting a near three-year high in August. Markit reported new business growth benefitted from improving customer demand, rising export orders, signs of recovery in the retail sector and the reopening of schools. Export orders were at a 21-month high in September.

“Confidence was essentially stable in the manufacturing sector in September, close to July’s 28-month high. Significantly though, Markit revealed that there were also increased numbers of firms noting uncertainty about the future, particularly regarding COVID-19 and Brexit.

“Employment in the manufacturing sector fell for an eighth month running, but the rate of decline did at least slow to the weakest since February. Nevertheless, the further decline in jobs provides the context for the Chancellor’s further support for the labour market with the recently announced Jobs Support Scheme.”

Howard Archer adds: “Input prices rose at the fastest rate for 21 months. Output prices rose at the fastest rate since March, but manufacturers’ margins were squeezed.”