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

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

The S&P Global UK Manufacturing Purchasing Managers’ Index dipped 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 under that figure denote contraction.

While manufacturing output rose for the sixth consecutive month, the PMI survey said output growth experienced a ‘near-stalling’ due to weaker volumes of new work.

S&P blamed this on a ‘lack of market confidence’, slower economic growth, and many domestic businesses adopting a ‘wait-and-see approach’ on contracts ahead of the Budget.

Demand was lower from both domestic and export clients, with new export orders declining for the thirty-third successive month.

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

S&P Global said the latter reflected greater production and attempts by businesses to clear logjams of work, although it also noted this growth was modest owing to uncertainty about the Budget.

Rob Dobson, director at S&P Global Market Intelligence, said: ‘UK manufacturing started the final quarter of the year on an uncertain footing amid speculation on government policies.

‘The November PMI will be especially keenly anticipated to see the near-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 a hike in employers’ National Insurance contributions to 15 per cent and a 6.7 per cent rise 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 £975million in research and development funding for the aerospace sector over five years and more than £2billion to support the automotive industry.

Maddie Walker, Accenture’s Industry X lead in the UK, remarked: ‘Manufacturing firms will be looking to move on from their holding pattern, now the Budget has been announced, and can pursue plans for growth.

‘Investment in infrastructure and manufacturing digital technologies will be welcome news, and there is renewed vigour to explore how technology can solve productivity and profitability challenges.’