The revitalisation of the manufacturing sector is showing signs of stalling, as indicated by a significant survey. Rising costs and apprehensions regarding the forthcoming budget are influencing business sentiment.
Surveys Indicate Declining Optimism
A closely monitored survey reveals that business confidence in the manufacturing sector has seen a marked decline. The S&P Purchasing Managers’ Index (PMI) for manufacturing shows that optimism for the coming year has plummeted to a nine-month low in September.
The survey records the second-largest drop in confidence on record, with a significant decrease noted just before the Covid lockdown in March 2020. Multiple factors, including uncertainty over government policy changes in the upcoming budget, have contributed to this decline.
Government Policy and Business Sentiment
The director at S&P Global Market Intelligence, Rob Dobson, stated, “Uncertainty about the direction of government policy ahead of the coming Autumn Budget was a clear cause of the loss of confidence, especially given recent gloomy messaging.” The survey is consistent with other recent surveys indicating deteriorating business confidence ahead of the budget.
Additionally, firms have experienced the fastest increase in input prices since January 2023, mainly due to higher freight costs. The rerouting of supply chains away from the Red Sea has also resulted in longer lead times from suppliers for the ninth consecutive month.
Rising Input Prices and Supply Chain Issues
Dobson noted that the increase in price pressures serves as a reminder that “the inflation genie is not yet back in the bottle.”
The survey indicates that businesses have scaled back recruitment and purchasing activities due to the drop in confidence.
Despite the dip in confidence, the survey highlights that output continued to grow for the fifth consecutive month in September, remaining in expansionary territory.
Manufacturing Output and Demand
According to S&P, the PMI was recorded at 51.5, consistent with the preliminary ‘flash’ estimate and slightly down from August’s 26-month peak of 52.5. A reading above 50 signals growth.
The growth was attributed to robust domestic demand, even as international business declined for the 32nd month in a row. The survey noted subdued demand in France, Germany, and the US.
Sector-Specific Performance
The main drivers of the latest expansion were the consumer and intermediate goods sectors, both of which registered stronger increases in output and new business.
In contrast, investment goods experienced a downturn, contracting for the first time in five months after previously being the top-performing sub-sector.
Impact on Recruitment and Purchasing Activities
Due to a decline in confidence, companies have reduced recruitment and purchasing activities.
Despite the challenges, the output has continued to grow, indicating some resilience within the sector.
Conclusion of Survey Findings
The S&P survey aligns with other recent surveys that indicate a deterioration in business confidence in the lead-up to the budget.
In conclusion, the manufacturing sector faces a challenging environment characterised by rising costs and budget concerns. The notable decline in business confidence, as evidenced by the S&P PMI survey, underscores the sector’s vulnerability to economic uncertainties.
Ongoing issues with supply chains and input prices further complicate the outlook. However, it is worth noting that despite these challenges, certain sectors continue to demonstrate robust domestic demand, signalling a measure of resilience.
