UK Manufacturing Shrinks Fastest In 7 Years, But Don’t Worry, ‘People Will Have Food’

The UK manufacturing sector contracted at the swiftest pace in more than seven years in August, CIPS and Markit Economics said Monday, painting a grim picture at a critical juncture as Boris Johnson shakes up an already fraught domestic political situation.

The 47.4 print very nearly matched the lowest estimate from nearly two-dozen economists and represented a deterioration from July.

August marked the fourth straight month in contraction.

New orders fell to 44.4, a steep drop from July’s 46.9 print and the worst read since July of 2012.

“The high levels of economic and political uncertainty pervasive across domestic and global markets continued to weigh heavily on the performance of UK manufacturing during August”, Markit said, adding that “business optimism slumped to its lowest level since a question tracking expectations for future output was added to the survey in July 2012 [amid] weakening market conditions, signs of a global economic slowdown, Brexit uncertainty and subdued client confidence”.

“Terrible PMI Manufacturing from UK again. If it wasn’t because BoE was paralyzed by the lack of Brexit clarity they would have eased big time by now”, Nordea’s Andreas Steno Larsen remarked. 

(Nordea)

Rob Dobson, Director at IHS Markit, didn’t mince words. To wit:

The further downturn in export orders occurred despite a weakening in the sterling exchange at the start of the month. This was felt on the costs front though, with 80% of companies providing a reason for higher purchase prices making at least some reference to the exchange rate. The current high degree of market uncertainty, both at home and abroad, and currency volatility will need to reduce significantly if UK manufacturing is to make any positive strides towards recovery in the coming months.

As Brexit planning intensifies, some firms were resorting to more inventory building whilst others were unravelling their stocks. With some supplies impacted by port delays and poor supplier performance, a creeping dread is descending on the sector that there will be more of these obstacles to come.

Over the weekend, the Labour Party said it will float legislation this week in an effort to prevent the country from leaving the EU with no deal. According to the Sunday Times, Johnson has considered expelling Tory members who support the effort.

In any event, the latest PMI data won’t do anything to allay fears that a no-deal Brexit risks pushing the economy into recession.

Asked over the weekend if there will be shortages of food, Michael Gove said “people will have the food they need”.

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So, that’s good news!

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