- August's UK manufacturing PMI affirmed the downbeat signal sent by the flash reading, falling to 47.3, the lowest since May 2020. High wholesale energy prices, weaker demand, and potential new sources of supply disruption suggest that the sector faces a challenging near-term outlook.
- The latest survey shows a decrease in inflationary pressures which, combined with the recent reduction in wholesale gas prices, provides some consolation. But the extent to which any new government fiscal support covers businesses as well as households, and the scale of such measures, is taking on increasing significance.
Martin Beck, chief economic advisor to the EY ITEM Club, says: “A fall in August's PMI to 47.3 from 52.1 in July wasn't quite as significant as that indicated by the earlier flash reading of 46.0. But it was the first time the index fell below the 50 'no-change' mark, separating the S&P Global/CIPS survey's measure of expansion from contraction, since May 2020. The details of the survey raised more concerns – the output balance was at the weakest, outside of the pandemic, since 2009 and growth in staffing near-stagnated.
“Although the manufacturing PMI has been an inexact guide to the official measure of output in recent months, the weakness of the latest index corroborated the story of a sector under pressure told by August's CBI industrial survey. And with manufacturers feeling the pressure of very high energy costs, softer demand, and the risk of port disruption from strikes, activity is likely to remain low for the foreseeable future.
“That said, the survey showed cost and price inflation have fallen, aided by a slowdown in raw material price increases and an easing in global supply chain disruptions. Meanwhile, wholesale gas prices have reduced markedly in the last few days, offering hope that the peak may have passed. But with manufacturers still facing historically high energy bills, any consolation from these developments will be limited. The extent to which any new government fiscal support covers businesses as well as households, and the scale of such measures, is taking on increasing significance.”