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Manufacturing slumps to lowest level in 31 months

Weak exports, job losses and signs that trade with Britain is still being “shunned” after Brexit meant that the manufacturing industry ended 2022 with its lowest output in more than two years.

Survey data from manufacturers, compiled by S&P Global, recorded a fifth straight month of contraction in the sector, with December suffering the lowest activity in 31 months. The S&P/CIPS purchasing managers’ index fell to a measure of 45.3 from 46.5 in November, below the 50 mark that indicates growth. The reading was better than an initial estimate of 44.7.

Britain’s manufacturers, accounting for about 10 per cent of the economy, have suffered from a slowdown in export demand, high energy costs and Brexit-related trade disruption. The survey noted that customs delays were adding to costs and were leading some European Union clients to source goods from outside the UK.

Rob Dobson, director at S&P Global Market Intelligence, said the problems facing British manufacturing were “being exacerbated by the constraints of Brexit, as higher costs, administrative burdens and shipping delays encourage increasing numbers of clients to shun trade with the UK”.

December’s survey data showed declines in all five sub-indices, such as output, new orders, jobs and stock levels, making it one of the worst months for factories since the financial crisis in 2009. The rate of job losses was the highest since October 2020 as falling orders led companies to shed staff.

“Output contracted at one of the quickest rates during the past fourteen years, as new order inflows weakened and supply chain issues continued to bite. The decline in new business was worryingly steep, as weak domestic demand was accompanied by a further marked drop in new orders from overseas,” Dobson said.

The economy is expected to have slipped into recession from the third quarter of 2022 and is forecast to generate no growth until late this year. Growth is expected to slump to the lowest among the G7 nations and to remain below its pre-pandemic peak until 2024, according to a poll of economists by The Times.

Thomas Pugh, an economist at RSM, the professional services firm, expects the economy to have contracted by 0.3 per cent in the last three months of 2022, confirming the fall into formal recession. “By October 2022, output in the manufacturing sector was still around 1 per cent below its pre-pandemic level and the sharp drop in the PMI in December suggests that output has fallen by even more over the last two months,” he said.

One of the few bright spots for manufacturers in December was a drop-off in the rate of energy and goods price inflation caused by improvement in global supply chains and an easing in oil and gas demand. Average purchase prices rose by the slowest rate since November 2020, according to the survey. A measure of expected future output rose to 66.3 last month, also indicating some relief for businesses.

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