Manufacturing contracts for first time in six months as new orders fall

UK factory activity contracted last month following a drop in new orders ahead of the Labor Government’s first budget, data shows.

The S&P Global UK manufacturing purchasing managers’ index fell to 49.9 in October from 51.5 in September, the first time it has fallen below 50 since April.

Any score above 50 indicates growth, while all numbers below that number denote contraction.

While manufacturing output rose for the sixth straight month, the PMI survey said output growth experienced a “near stagnation” due to weaker volumes of new jobs.

S&P attributed this to a “lack of market confidence”, slower economic growth and many domestic companies taking a “wait and see approach” to contracts ahead of the budget.

Demand was lower from both domestic customers and exporters, and new export orders declined for the thirty-third consecutive month.

However, input costs rose at their slowest pace in ten months, while the total number of manufacturing staff rose for the third time in four months.

S&P Global said the latter reflected higher production and companies’ attempts to clear work logjams, although it also noted that this growth was modest due to budget uncertainty.

Rob Dobson, director of S&P Global Market Intelligence, said: ‘The UK manufacturing industry entered the final quarter of the year under conditions of uncertainty amid speculation over government policies.

“The November PMI will be especially awaited to see the short-term impact of the Budget on business conditions and, in particular, the effect on confidence.”

Among the measures announced by chancellor Rachel Reeves on Wednesday was an increase in employers’ National Insurance contributions to 15 per cent and a 6.7 per cent increase in the national living wage.

These two actions have raised significant concerns that companies will hurt profit margins, cut jobs or be more reluctant to hire new staff.

The budget also included £975 million in research and development funding for the aerospace sector over five years and more than £2 billion to support the automotive industry.

Maddie Walker, Industry

“Investment in infrastructure and manufacturing of digital technologies will be good news, and there is renewed vigor to explore how technology can solve productivity and profitability challenges.”