Gloom as industry output shrinks again

The latest Markit/CIPS purchasing managers’ index (PMI) produced a headline reading of 49.1 for November, an improvement on 47.3 in the previous month but below the 50 mark that separates expansion from contraction.

A contraction in the intermediate goods sector – sub-components later used in the manufacture of another product, such as a gearbox in a car – and capital goods such as machinery offset gains in the consumer goods sector, Markit said.

Samuel Tombs, UK economist at Capital Economics, said: “The small improvement in the manufacturing survey in November does little to change the fundamental picture of a struggling industrial sector.”

The economy bounced back to growth in the third quarter, with gross domestic product rising 1 per cent between July and September. However, experts have warned the rebound was driven by one-off factors and the underlying picture is much weaker.

Bank of England Governor Sir Mervyn King recently warned that output could shrink again in the fourth quarter amid signs that the service, manufacturing and construction sectors are all suffering. Demand from the domestic market remained subdued, Markit said, while the level of new export orders continued to deteriorate.

Companies reported weaker inflows of new business from clients operating in Europe and the US, it added, but the rate of new export orders slowed to its weakest since August. A total of one in five exporting manufacturers reported a decrease in new orders from overseas customers.

Employment levels fell among manufacturers for the fourth month running, with job losses picking up since October.

There was some bad news for the Bank of England on the inflation front as manufacturers increased average selling prices again. Rob Dobson, senior economist at Markit, said: “Subdued domestic market conditions and declining export orders mean producers remain focused on keeping costs as low as possible.

“Employment, purchasing and stocks are all therefore continuing to be cut, which is likely to drag on the wider economy in the coming months.”

Andrew Tuscher, regional director at manufacturers’ organisation EEF, said that the Yorkshire region is “pretty reflective” of the national picture.

“Automotive is usually a very, very good barometer, and if you look at manufacturers in Yorkshire and the Humber supplying the automotive sector it’s a very mixed picture. Dependant on who they are suppling into, they can be doing exceptionally well or be doing exceptionally poorly.” If businesses are solely relying on Europe, again dependent on which sector they are, he said it is “a mixed story”, but adding: “In the main, not very positive. We are seeing however very, very good figures for those that are exporting into Brazil and Latin America.”

Margaret Wood, chair for Yorkshire Institute of Directors, said: “New technology industries are still buoyant and are benefiting from investment. However, there is still the lack of confidence generally which is affecting the recovery.

“The higher energy charges and lack of investment into companies help contribute to the output figures being stagnant.”

The contraction in activity at the eurozone’s manufacturers eased to an eight-month low in November, a separate survey showed yesterday. Markit’s Eurozone manufacturing PMI rose to 46.2 in November from October’s 45.4, though it stayed below the 50 mark dividing growth from contraction for the 16th straight month. Manufacturing accounts for around a quarter of the eurozone’s private economy and is dwarfed by a services sector that fared badly in November, the data two weeks ago showed.

And data yesterday showed China’s manufacturing sector expanded for the first time in over a year. The latest readings from official and private sector surveys of China’s vast manufacturing sector showed activity picked up.

[email protected]