Manufacturing Loses its Momentum in the Face of Fresh Lockdowns

James Rowbury, Investment Research Coordinator

With recently reported subdued inflation and fresh lockdown restrictions approaching, the UK manufacturing sector appears to have lost its momentum going into September, with business sentiment falling slightly.

The seasonally-adjusted UK Manufacturing Purchasing Managers’ Index (PMI) registered 54.3 in September, down from 55.2 in August but above the Neutral 50.0 threshold for the fourth consecutive month; though this was above expectations of 54.1. The UK Manufacturing PMI uses the value of 50 as the Neutral level. Any reading above 50 suggests an expansion of the manufacturing sector, while a figure below 50 implies a contraction.

Export sales showed to be a positive contributor to manufacturing going into September, assisted by the rising demand from customers within Asia. Output and New Business growth both slowed from the peaks witnessed in August, which is, to some extent, linked to the inability of plant capacity to catch up with the rising demand. On a positive note, data suggested that the fastest expansion of total new work from abroad since February 2018 had occurred.

Fears rising around a second wave of COVID-19, and further lockdown restrictions which have since been imposed, do not place a strong outlook on the private sector. This has caused a general downward trend in business optimism, but manufacturing companies came to the consensus that confidence is stable this month. In manufacturing, 60% of companies expect a rise in output during the next 12 months, with only 11% expecting a fall. Through our forward-looking lens, we would expect this reading to tail off slightly as we enter a period of lower growth, but much of this depends on the severity of restrictions to the UK economy in the coming months.

Please note that investments and income arising from them can fall as well as rise in value.