Factories report modest recovery in November, but outlook remains bleak

The manufacturing sector saw a slight rebound in activity in November, data showed on Monday, but optimism for the future sank to fresh lows as Brexit uncertainties weighed heavily.

The IHS Markit CIPS purchasing managers’ index for November was 53.1, an improvement on October’s 27-month low of 51.1. The domestic market was the main source of new contract wins, with output and new orders rising across the consumer, intermediate and investment goods sectors.

The level of new export business dropped for the second consecutive month, however. That was the first back-to-back contraction since early 2016, with respondents blaming reduced interest from overseas clients and the ongoing Brexit uncertainties.

The overall degree of optimism dipped to a 27-month low, as concerns about Brexit, sterling and a potential slowdown in the wider economy dominated.

Rob Dobson, director at IHS Markit, said: "The November PMI provided a lacklustre picture of the UK manufacturing sector, as ongoing global trade tensions and Brexit uncertainty weighed on current business conditions and dampened the outlook for the year ahead.

"Although the headline PMI regained some lost ground, and trends in output, new orders and employment picked up slightly from a weak October, growth is still among the weakest seen over the past two-and-a-half years."

Dobson added that companies had been building up stocks over concerns that Brexit may harm supply chains.

The PMI data echoed the fourth quarter EEF/BDO Manufacturing Outlook Survey, also published on Monday, which found that the outlook for manufacturers was "deteriorating". It said that while the balance for output, at +22%, and orders, at +14%, remained positive, "there has been a clear moderation in the strength of balances throughout the course of 2018, a trend which has accelerated in the final quarter".

EEF has revised its growth forecast for manufacturing for 2018 upwards, to 1.1% from 0.9%, but has downgraded its 2019 forecast, from 0.5% to just 0.3%. It blamed a "weaker outlook and uncertainty".

Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: "The challenges lurking round the corner reveal that this marginal growth [in November] may not be enough to keep the sector on an even keel in the last quarter.

"Businesses looked to new product launches and greater efficiencies along with reduced finished goods inventories to increase cashflow. It appears these are currently the only weapons in the sector’s armoury as uncertainty lingers and the battle for an agreed Brexit continues."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, agreed that the sector remained on course to slow in the fourth quarter.

He added: "Concerns about the potential impact of Brexit on domestic demand contributed to a decline in confidence among manufacturers about future production levels to the lowest since August 2016. With overseas demand fragile, the sector does not have a buffer to withstand any lurch down in the domestic economy caused by either a no-deal Brexit or intensifying fears that this worst case might happen."