Manufacturing may need more government and MPC support

November data from Chartered Institute of Purchasing and Supply (CIPS) pointed to a deepening of the downturn in UK manufacturing that was, it says, without precedent during the near 17-year history of its monthly survey. The CIPS Purchasing Managers’ Index (PMI) – in which readings above 50 indicate growth and those below 50 contraction – fell to 34.4 in November, down by a record 6.3 points from October and the lowest reading since data was first collected in January 1992. The headline PMI has now fallen to new lows in each of the past three months. CIPS reports the extent of the downturn as being far-reaching, with indexes tracking trends in output, new orders, new export orders, employment, stocks of raw materials, purchasing activity and backlogs of work all falling. Rob Dobson, senior economist at Markit Economics, said: “These data suggest that the UK government and MPC may need to consider additional support to the sector despite recent sharp cuts in central borrowing rates.” Companies reported that the onset of the global economic downturn, ongoing credit restrictions and the crises in the auto, construction, consumer and financial sectors were leading many clients to postpone, or cancel, new and pipeline agreements. And despite the recent weakness of sterling, the ongoing global credit crisis impacted foreign demand for UK manufactured goods. In particular, companies reported lower levels of new work received from clients based in the US, mainland Europe and East Asia. The rate of job losses also accelerated sharply as companies initiated redundancy and workforce rationalisation programmes. More positively, raw material costs dropped for the first time since July 2005. Nevertheless CIPS’ Roy Ayliffe (pictured) said “even this was another echo of dwindling global demand”. He went on: “Purchasing managers said no stone was left unturned as the credit crunch continued to eat into all areas of capital, consumer and intermediate goods sectors. What’s more, it’s clear that the UK isn’t suffering alone as the more favourable sterling failed to encourage demand from foreign clients - especially those based in the US, mainland Europe and East Asia.”