U.K. manufacturing sector’s conditions decelerate sharply in October, PMI index falls to 51.1

U.K. manufacturing sector’s conditions decelerated sharply in October. Seasonally adjusted IHS Markit/CIPS PMI dropped to 51.1, a 27-month low, from September’s revised reading of 53.6. Firms attributed the fall in manufacturing new orders to decreased inflows of new work from overseas and weaker growth of domestic demand. The softness in total new orders was mainly centred on the consumer goods sector, as the intermediate and investment goods categories both recorded mild growth.

Foreign demand fell for the second time in the last three months in October. Some firms recorded that Brexit uncertainties had negatively affected inflows of new work from within the EU. Others focussed more attention on rising global trade tensions and softer demand from the world autos sector.

The fall in new orders resulted in a sharp deceleration in the growth rate of manufacturing production. Output growth was the softest since the current sequence of rise started in August 2016. Growth was hinted in the intermediate and investment goods sectors, whereas the consumer goods category saw a mild decline in production.

The soft performance of the sector filtered through to the labor market, with manufacturing employment falling for the first time since July 2016. Staffing levels increased at SMEs, but dropped for the third consecutive month at large-sized firms. Where job losses were reported, this was attributed to the fall in new work received, staff reorganizations, redundancies and attempts to control costs.

Cost-control initiatives and attempts to protect cash flow also added to the fall in raw material purchasing and lower stock holdings. Inventories of finished goods and purchases both dropped in October. Input price inflation stayed marked in October, in spite of easing to a 28-month low. Firms attributed the latest rise to the higher costs of aluminium, energy, oil, steel and timber, rising import duties, exchange rate fluctuations, market volatility and Brexit uncertainty. Supply-side constraints also led to increased purchasing costs. Output charges rose at the slowest rate in just over two years.

U.K. manufacturers continued to keep an optimistic outlook in October, with more than 48 percent expecting output to be higher one year from now. Positivity reflected new product launches, new capacity and export opportunities.

At 13:00 GMT the FxWirePro's Hourly Strength Index of British Pound was slightly bullish at 55.0082, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -51.8382. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex