U.K. manufacturing sector’s output contracts further in December, PMI index falls to 47.5

The manufacturing sector in U.K. saw the downturn worsening at the end of 2019, as output shrank at the most rapid pace since July 2012. The headline seasonally adjusted IHS Markit/CIPS Purchasing Manager’s Index dropped to 47.5 in December, the second weakest level for nearly seven-and-a-half years. The PMI has come in below the neutral mark of 50 in each of the past eight months. Manufacturing production dropped at the sharpest pace in nearly seven-and-a-half years. Contractions were hinted in both the intermediate and investment goods sectors, whereas a marginal growth was hinted in the consumer goods category.

The level of new work saw decline for the eighth straight month in December. The fall in total new business was among the steepest seen in the past seven-and-a-half years, as inflows softened from both domestic and overseas clients. Lower new business intakes were attributed to ongoing worries regarding the economic, global trade and political outlooks. New export business dropped for the second consecutive month. Similar to the trend in output, intermediate and investment goods producers saw sharp falls in both total new work and new export orders. The falls seen in investment goods were mainly marked and the sharpest in more than a decade. On the contrary, consumer goods producers saw improved intakes of new business from domestic and overseas markets.

Business confidence continued to be positive in December. More than 43 percent of companies project that output might be higher one year from now. The positivity was attributed to reduced uncertainty, new product launches, increased efficiency and improved client confidence. However, the degree of confidence continued to be soft by the historical standards of the survey.

Employment in the manufacturing sector was reduced for the ninth straight month in December, albeit at the softest pace since August. Job losses were seen throughout the consumer, intermediate and investment goods sectors and also at SMEs and large-sized companies. Lower headcounts saw softer demand, productivity gains, cost reduction initiatives, ongoing uncertainties and recruitment freezes.

Input prices rose a bit for the first time in three months in December. Manufacturers responded by raising output charges to the greatest degree for six months. Holdings of finished goods inventory dropped, mainly because of firms reducing Brexit safety stocks.