Press release

3 Jul 2023 London, GB

Manufacturing downturn continues, but better news on inflation – EY ITEM Club comments

June's manufacturing PMI of 46.5 continued a run of sub-50 readings which began last August, signalling a sector stuck firmly in contraction. The latest index was down from 47.1 in May and the lowest since last December, if a little higher than the flash reading of 46.2. Respondents cited weaker confidence and market uncertainty as factors dragging on production, alleviated only in part by a further improvement in supply-chain performance.

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James White

Senior Executive, Media Relations, Ernst & Young LLP

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  • Another sub-50 reading for the latest manufacturing Purchasing Managers’ Index (PMI) pointed to a sector stuck in contraction. Given pressure from higher interest rates on activity at home and abroad, the EY ITEM Club doubts manufacturers' fortunes will see a significant upturn any time soon.   
  • There was better news on the inflation front. The S&P Global/CIPS survey's balances for input costs and output prices signalled outright falls, the latter the first in over seven years. But the marked divergence between recent soft survey results and stronger official core goods inflation means the EY ITEM Club doubts these developments will have much bearing on the Monetary Policy Committee's (MPC) thinking.

Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “June's manufacturing PMI of 46.5 continued a run of sub-50 readings which began last August, signalling a sector stuck firmly in contraction. The latest index was down from 47.1 in May and the lowest since last December, if a little higher than the flash reading of 46.2. Respondents cited weaker confidence and market uncertainty as factors dragging on production, alleviated only in part by a further improvement in supply-chain performance.

“The forward-looking balances of June's S&P Global/CIPS survey also remained downbeat, with new orders slipping further. And while a majority of manufacturers surveyed still forecast growth over the next 12 months, overall optimism dipped to a six-month low. The impact on consumer spending and investment of higher interest rates at home and abroad mean the EY ITEM Club would concur with a more downbeat view of the sector's prospects.

“On the face of it, there are stronger grounds for optimism about costs, given falls in the price of energy and other raw materials. Indeed, the latest survey signalled an outright fall in the cost of inputs bought by manufacturers for the second month in a row. And output prices fell for the first time since April 2016. But recently, there's been a marked divergence between the softer results from this survey and much stronger readings for core goods inflation from the Office for National Statistics (ONS). The Bank of England is likely to place a higher weight on the latter. Developments in inflation in the much-bigger services sector will be key, and here the omens from the official data and surveys have been looking less promising.”