Dr John Glen
Chief Economist, The Chartered Institute of Procurement & Supply
Manufacturing companies were showing strain in May with the fastest fall in production in four months as new orders levels fell, inflationary pressures remained challenging and job shedding continued.
According to survey data released in June from S&P Global and CIPS, the overall index figure was 47.1, down from April and where a figure under the no-change 50 mark shows a contraction.
A weak marketplace in UK economy
The sector was hit by a lack of domestic and overseas orders, especially in intermediate goods. Consumer goods orders saw an uplift in orders. A difficult marketplace was blamed as customers felt indecisive and hesitant to order because of the challenges in the UK economy.
Work from overseas took another hit and fell for the 16th month in a row across all subsectors. There was less demand from the US and Europe as stronger global competition meant customers had more choice; but for European clients, issues around Brexit such as higher administrative duties and tariffs meant they were sourcing closer to home.
For European clients, issues around Brexit such as higher administrative duties and tariffs meant they were sourcing closer to home.
Jobs and inflation
Average prices for raw materials fell for the first time since November 2019, which looks like there was some relief for firms struggling with business costs. However, the rate of decline was small and not evident across all subsectors and, after a long period of rises, raw material costs were still high compared to even a year ago.
The prices manufacturers charged their customers rose further, as they have in every month since May 2016. Businesses tried to absorb inflationary costs to maintain their customer base but after a prolonged period doing so and the increased salary demands in today’s jobs market, they were still forced to raise prices.
The employment situation remains worrying. Job losses were recorded for an eighth consecutive month where leavers were not replaced, and manufacturers reined back their operations as pipelines of work weakened and capacity reduced. The rate of decline was only marginal but could show a trend developing for business in 2023.
Supply chain improvement
There were more signs of normality appearing in the efficiency of supply chains, and shortages were less evident. Delivery times from suppliers shortened for the fourth month in a row as logistics improved and raw material availability recovered.
These improvements led supply chain managers to buy-in fewer materials in May. Manufacturers overstocked during the pandemic to ensure production could continue during disruptive times. They are now struggling to rundown these high stocks, especially as the downturns in demand and production deepen.
