UK manufacturing hopes dive on economic fears, survey shows

Optimism among British manufacturing firms slumped last month amid global economic uncertainty, a survey showed.

Growth expectations among UK manufacturers fell at the steepest monthly rate since May 2013 in September amid a faltering global economy and worsening geopolitical tension, according to the latest Business Trends report from accountancy firm BDO.

Weak and uneven global demand also reduced cost pressures on UK businesses, with BDO’s Inflation Index falling for the fifth consecutive month to just above the mark that separates inflation from deflation.

BDO said the inflation data raised concerns that the UK would follow the eurozone into a deflationary spiral.

BDO's partner & national head of mergers & acquisitions, Peter Hemington, said: "With global conditions becoming increasingly challenging, it was only a matter of time before the stellar increases in economic growth recorded earlier this year came to an end.

"Given their reliance on exports, manufacturers have borne the brunt of weakening global demand but the effects of stuttering worldwide growth are obvious throughout the economy.

"The most noteworthy effect is falling cost pressures. Although presenting good news for company profits, on an economy-wide scale the trend is worrying as it brings the UK economy closer to the deflation scenario that has spooked European policymakers."

The BDO Output Index, which predicts businesses’ growth expectations over the next three months, fell from 103.8 in August to 103.3 in September.

BDO said the modest drop masked a sharp fall of 1.6 points in the BDO Output sub-index for manufacturers, which fell from 113.2 to 111.6.

Although the reading remained well above the 100 mark, indicating long-term growth, the findings suggest a number of factors are undermining orders from UK manufacturers, which are vulnerable to international developments due to their reliance on exports.

These include collapsing sentiment in the Eurozone, a faltering US recovery and geopolitical concerns.

The BDO Inflation Index fell for the fifth consecutive month to 96.6 in September – just above the 95 mark that separates inflation from deflation. In addition to falling commodity prices caused by disappointing global growth, prolonged low wage growth in the UK is limiting upward cost pressures on labour-intensive service firms.

Meanwhile, another survey provided evidence that the momentum of the UK economic recovery is slowing down/

Private sector output growth lost some momentum across England and Wales in September, according to the latest Lloyds Bank Regional Purchasing Managers’ Index.

Seven of the nine English regions saw output growth weaken compared to August. However, employment growth was maintained and costs of production for firms remained subdued across both the manufacturing and service sectors.