Manufacturers enter 2024 on 'knife edge' after December dip in output and confidence

The latest downbeat PMI also shows job losses being recorded for the 15th month in a row.

Britain’s manufacturing downturn deepened further in the closing weeks of 2023 and business confidence slumped to a 12 month-low, a key survey has revealed.

The closely-watched S&P Global/Cips UK manufacturing PMI (purchasing managers’ index) fell from 47.2 in November to 46.2 in December. That left it well below the 50 threshold that separates expansion from contraction. It also marks the 17th month in a row that activity has declined as factories grapple with a prolonged dip in demand at home and abroad.

Manufacturing firms, which include the likes of car-makers, engineers and chemical producers, said they produced less last month as a result of fewer orders from clients. Weaker demand from overseas companies and firms reducing their stockpiles also resulted in less work during December. Poor weather conditions were also blamed for a decline in activity.

Manufacturing businesses covered by the closely-monitored survey include the likes of car-makers, engineers and chemical producers.

Rob Dobson, director at S&P Global Market Intelligence, said: “UK manufacturing output contracted at an increased rate at the end of 2023. The demand backdrop also remains frosty, with new orders sinking further as conditions remain tough in both the domestic market and in key export markets, notably the EU.”

Mike Thornton, national head of manufacturing at RSM UK, the audit, tax and consulting firm, said manufacturers had entered 2024 on a “knife edge” after output fell in December. He said: “The industry is well into its second year of contraction. The suite of individual policies announced in the Autumn Statement, including the launch of the advanced manufacturing plan and the decision to make full expensing permanent, were therefore welcome news for the sector.

“Government can still do more to capitalise on the opportunity to take a more holistic approach to supporting industry, and manufacturers will be hoping that an industrial strategy is announced alongside the spring Budget.”

The slump has had an impact on manufacturers' confidence, with business optimism falling to a 12-month low in December, reflecting tougher economic conditions, closures among clients and higher interest rates.

Dobson added: “With concerns about high interest rates and the cost-of-living crisis hurting demand, the outlook for manufacturers in the months ahead remains decidedly gloomy.”

Elsewhere, job losses were recorded for the 15th month in a row, as more firms made redundancies or initiated hiring freezes to control costs with demand waning. Nevertheless, manufacturers said they expect production to rise on average over the year ahead, and waiting times to drop further.

Martin Beck, the chief economic adviser to the EY Item Club, said 2023 ended on a “disappointing note” but added that manufacturers should begin to see conditions improve this year.

He noted: “The post-Covid global readjustment of consumer spending patterns from goods back to services has probably now largely run its course, relieving manufacturers of a major headwind faced over the last year. An easing in cost-of-living pressures following a swift decline in inflation in the UK and abroad should support demand for goods.”

RSM economist Tom Pugh added: “Overall, the PMI paints a picture of a subdued manufacturing sector that is feeding through to lower employment growth and slowing inflation.”