- November's UK manufacturing PMI rose slightly to 46.5 but remained in the contractionary sub-50 territory and affirmed the despondent signal sent by the flash reading. A large decline in new orders suggests the sector faces a weak near-term outlook.
- However, the survey did signal a further cooling in cost pressures. As activity and inflation continue to ease, this is consistent with the EY ITEM Club’s view that the Monetary Policy Committee will dial back the extent of policy tightening in its December meeting.
Martin Beck, chief economic advisor to the EY ITEM Club, says: “The manufacturing PMI rose marginally to 46.5 in November from 46.2 the previous month, but remained firmly in sub-50 contractionary territory. The sector's PMI has broadly been on a downward trend since the start of the year and continues to underperform relative to services.
“November’s survey reported a decline in output volumes, with manufacturers facing a significant fall in new orders linked to cost-of-living challenges and much weaker demand from abroad – export orders fell at the fastest rate in 30 months. The EY ITEM Club expects that there is unlikely to be any improvement in the near-term. Though inflation has probably passed its peak, it's likely to remain sticky, while many advanced economies look on course enter recession in 2023 and global growth is likely to slow considerably. The downbeat outlook appears to have been acknowledged by respondents to the S&P Global/CIPS survey, as evidenced by a second consecutive fall in employment.
“However, the survey suggested that manufacturers continued to experience an easing in the pace of input price inflation, albeit with the survey’s balance remaining above the long-run average. This fed into a slightly lower balance for output prices, though it too remained elevated compared with historical norms. On balance, the EY ITEM Club sees nothing in this survey to particularly surprise the Bank of England and expects the Monetary Policy Committee will announce a 50bps rate rise at its next meeting in December, after increasing by 75bps in November.”