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Sharpest drop in UK private sector output since July 2016

Christian Fernsby |
The headline IHS Markit / CIPS Flash UK Composite Output Index registered 48.5 in November, down from 50.0 in October and below the crucial 50.0 no-change value.

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Lower private sector output has now been recorded in two of the past three months, with the latest survey signalling the sharpest rate of decline since July 2016.

The overall reduction in business activity reflected modest falls in both manufacturing and service sector output.

Reports from survey respondents largely attributed weaker domestic economic conditions to a lack of clarity in relation to Brexit, alongside a fresh injection of business uncertainty from the forthcoming general election.

In the manufacturing sector, there were also reports that customer overstocking ahead of the Brexit deadline on 31st October had acted as a headwind to production volumes in November.

New work received by private sector firms dropped for the fourth month running during November.

Mirroring the trend for output, the latest decline in new orders was also the fastest since July 2016.

Softer demand contributed to the largest reduction in backlogs of work for over seven years in November.

Private sector companies responded to a lack of pressure on capacity by trimming staffing numbers for the third consecutive month, although the rate of decline was only marginal.

Meanwhile, latest data revealed a moderation in the rate of input cost inflation to its weakest for almost three-and-a-half years.

Despite softer cost pressures, average prices changed increased at the fastest pace since July, largely reflecting a steeper rise across the service economy.

The IHS Markit/CIPS Flash UK Manufacturing Purchasing Managers’ Index® (PMI®) – a composite single-figure indicator of manufacturing performance – registered 48.3 in November, down from 49.6 in October.

This index has posted below the neutral 50.0 threshold in each month since May.

Worsening manufacturing sector conditions mainly reflected lower levels of output, new orders and employment in November.

An additional drag on the headline PMI was the sharpest fall in stocks of purchases since June 2018, which goods producers attributed to a reversal of stock building ahead of the 31st October Brexit deadline.

Production volumes continued to fall in November, with manufacturers commenting that global economic uncertainty and domestic political upheaval had contributed to more cautious spending decisions among clients.

A lack of new work to replace completed projects resulted in more cautious hiring policies across the manufacturing sector.

The latest reduction in workforce numbers was the largest since September 2012.

Meanwhile, efforts to improve working capital efficiency led to the sharpest fall in stocks of finished goods for just over two-and-a-half years.

Input prices were broadly unchanged in November, which contrasted with the robust rises in cost burdens seen in the first half of 2019.

Some manufacturers noted that a stronger sterling exchange rate had helped to alleviate inflationary pressures.

However, the impact on margins was limited by subdued factory gate price inflation, which slipped to a three-and-a-half year low.

At 48.6 in November, down from 50.0 in October, the IHS Markit/CIPS Flash UK Services PMI® Business Activity Index fell back below the 50.0 no-change level and signalled a modest reduction in service sector output.

The latest reading was the lowest since July 2016.

Service providers continued to link weaker demand to delayed decision-making in response to domestic political uncertainty, especially among large corporates.

Some survey respondents also commented on more subdued consumer spending patterns in November.

As a result, new business volumes dropped for the third month running, partly reflecting the sharpest fall in sales to overseas clients since the start of 2019.

Meanwhile, the latest rise in operating expenses was the weakest since August 2016.

Service providers noted that lower non-staff costs had helped to alleviate some of the pressure from rising salary payments at their businesses in November.

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