Manufacturing supply chains set to be tested as output moves in right direction, says RSM UK
03 April 2023
Commenting on the latest CIPS UK Manufacturing Purchasing Managers’ Index which has decreased slightly from 49.3 in January to 47.9 in March, Mike Thornton, national head of manufacturing at RSM UK, said: ‘The latest manufacturing PMI for March has seen a slight fall, however this shows signs of stabilisation rather than a cause for concern, given the strong uptick in recent months. Encouragingly, it is still sitting at a higher level than in Q4 2022, and with input prices falling more sharply than output prices, manufacturers now have the capability to rebuild margins and pass on costs to the consumer.
‘One key standout in this month’s data is the suppliers’ delivery times index rising to 55.3 – its highest level since 2009, which indicates that manufacturers can readily access stock and that supply chain issues, which arrived during the pandemic, have completely unwound. While this could suggest that supply chains are better and more resilient, it could be a sign of false hope, given the global impact geopolitical conditions are having on demand. More likely, this reflects the falling demand over the last two years. It’s also partly due to supply chains catching up, manufacturers producing more goods in response to high prices and uncertainty throughout 2022, and businesses holding more stocks than in previous years.’
He added: ‘On the upside, the new orders index has risen to 50.1, sitting above 50 for the first time since May 2022, indicating that demand is picking up and outlook is stronger for the second half of 2023. But, with delivery times loosening up, given the lull in demand previously, the question remains whether supply chains are equipped to handle a potential increase in demand, especially as the sector continues to face labour shortages.
Thomas Pugh, economist, RSM UK added: ‘The slight drop in the manufacturing PMI follows the fall in the services PMI, but still suggests the anticipated recession will be mild. Indeed, it’s touch-and-go as to whether the UK falls into a recession at all.
However, we are yet to see most of the impact of the huge rise in interest rates over the last year, and the PMI hasn’t been the most reliable guide to movements in the economy since the pandemic. As such, there is a good chance that the UK still falls into a mild recession in the first half of this year, before growth resumes in Q3.
Even if the UK does avoid a technical recession of two consecutive quarters of negative GDP growth, we will still enter a ‘slowcession’, where growth essentially flatlines. It will probably be the end of 2024 before the UK economy is back to its pre-pandemic size, representing four years of stagnation.
Today’s data will support the doves (economic policy advisors preferring policies that involve lower interest rates) on the Monetary Policy Committee (MPC) who say that interest rates are high enough. The drop in the employment index will be encouraging to the MPC as it implies firms are shedding some staff.’
‘One key standout in this month’s data is the suppliers’ delivery times index rising to 55.3 – its highest level since 2009, which indicates that manufacturers can readily access stock and that supply chain issues, which arrived during the pandemic, have completely unwound. While this could suggest that supply chains are better and more resilient, it could be a sign of false hope, given the global impact geopolitical conditions are having on demand. More likely, this reflects the falling demand over the last two years. It’s also partly due to supply chains catching up, manufacturers producing more goods in response to high prices and uncertainty throughout 2022, and businesses holding more stocks than in previous years.’
He added: ‘On the upside, the new orders index has risen to 50.1, sitting above 50 for the first time since May 2022, indicating that demand is picking up and outlook is stronger for the second half of 2023. But, with delivery times loosening up, given the lull in demand previously, the question remains whether supply chains are equipped to handle a potential increase in demand, especially as the sector continues to face labour shortages.
Thomas Pugh, economist, RSM UK added: ‘The slight drop in the manufacturing PMI follows the fall in the services PMI, but still suggests the anticipated recession will be mild. Indeed, it’s touch-and-go as to whether the UK falls into a recession at all.
However, we are yet to see most of the impact of the huge rise in interest rates over the last year, and the PMI hasn’t been the most reliable guide to movements in the economy since the pandemic. As such, there is a good chance that the UK still falls into a mild recession in the first half of this year, before growth resumes in Q3.
Even if the UK does avoid a technical recession of two consecutive quarters of negative GDP growth, we will still enter a ‘slowcession’, where growth essentially flatlines. It will probably be the end of 2024 before the UK economy is back to its pre-pandemic size, representing four years of stagnation.
Today’s data will support the doves (economic policy advisors preferring policies that involve lower interest rates) on the Monetary Policy Committee (MPC) who say that interest rates are high enough. The drop in the employment index will be encouraging to the MPC as it implies firms are shedding some staff.’
