UK PMI demonstrates falling production and weak demand

September has been the third consecutive month of rapid decline in UK manufacturing output. As a result of falling foreign demand, the amount of orders also fell significantly. 

The S&P Manufacturing PMI hit 48.4, up from a 27-month low of 47.3 last month. However, the index remained below the 50 level, also falling short of market expectations of 48.5.

“September’s rate of decline in new export contracts was the fastest since May 2020 amid lowered demand from the U.S., the European Union and China," S&P Global reported. 

"Manufacturers are facing weak global market conditions, growing uncertainty, high transportation costs that undermine competitiveness, and long lead times leading to order cancellations," analysts noted.

The UK economy is on the brink of recession. There exists a set of reasons: business struggling with rising energy prices, along with a jump in borrowing costs and the pound volatility that reached a record low in relation to the U.S. dollar on September 26. 

In theory, the weak pound should have boosted demand for U.K. exports by lowering prices for overseas buyers. However, past experience of 2008 and 2016 suggests little increase in British exports.

Meanwhile, a weaker pound raises prices for imports of fuel and raw materials, as they are often measured in dollars. The PMI showed purchasing cost inflation increased for the first time in five months. This was partly due to the national currency weakening.

“Price hikes have occurred across a wide range of manufacturing commodities, including chemicals, electronics, food, metals, packaging, plastics and timber,” S&P Global said in a statement.

Hugh Pill, chief economist at the Bank of England, noted an interest rate hike is likely to happen in November. The need will arise amid monetary easing at a time when inflation reaches a 40-year high.