Manufacturing job cuts accelerate

Falls in UK manufacturing output and new orders in December led to the most severe cut in employment since data was first collected in January 1992.

The seasonally adjusted CIPS/Markit Purchasing Managers' Index – which provides a single-figure barometer of the health of the manufacturing sector – posted 34.9 in December, little-changed from November's record-low of 34.5 and well below the neutral 50.0 mark.

Based on the average reading for the PMI, the whole-year performance of the UK manufacturing sector during 2008 was the weakest since the survey began in 1992. This was also the case for trends in output, new orders and employment.

Companies are reporting a broad-based collapse in global demand. Although December's downturn in total order books was predominantly centred on the domestic market, overseas demand was also substantially lower. Part of the reduction was linked to the precarious states of the UK, the US and the European automotive sectors.

Levels of employment, purchasing and inventories all fell during December as a result of the tough market conditions. Rates of reduction in staffing and input buying were the highest in the survey history, while both pre- and post-production inventories were reduced further.

December data pointed to reductions in output charges and input prices. The main factors driving down purchasing costs were lower oil, metals, transportation and energy prices, which some companies passed on to clients. Where an increase in input costs was recorded, this generally reflected higher import prices resulting from the weak sterling exchange rate.

In a further sign that supply-side pressures are easing, average vendor performance improved for the third month running in December.

Roy Ayliffe, director of professional practice at the Chartered Institute of Purchasing & Supply, said: "There was little to celebrate at the end of 2008. As the sector performed at near to its worst in the PMI's 17-year history, there were murmurs of a recession similar to that seen in the early 1990s.

"While businesses of all sizes suffered a sharp drop in levels of output, it was the smaller firms which experienced the fastest rate of contraction. Consequently, companies were forced to axe staff at a record rate.

"What's more, it's clear the UK is not in isolation. Even the weakening pound did little to encourage overseas activity as the economic crisis continues to make its mark across the globe."

Rob Dobson, senior economist at Markit Economics said: "The second half of 2008 has been a nightmare for UK manufacturers, and December PMI data confirm that the sector will enter the New Year on its weakest footing since at least the early-90s recession. Production, new orders and employment are still dropping at, or near to, survey-record rates as the ongoing crises in the autos, construction, financial and retail markets are all draining demand. Export orders fell at a series-record rate, as manufacturers were unable to benefit from the drop in sterling during a global market downturn."

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