Manufacturing slumps into contraction

Posted on 20 Jun 2019 and read 351 times
Manufacturing slumps into contraction The UK manufacturing sector slipped into contraction in May, the first time it has done so since July 2016, according to the latest IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI), which fell from 53.1 in April to 49.4 in May (against the neutral reading of 50).

The PMI shows that new order inflows from both domestic and overseas sources deteriorated, with “the trend in production the weakest for past 34 months”.

Duncan Brock, group director at CIPS (www.cips.org), said: “With one of the fastest-shrinking rates seen in six and a half years and the biggest drop since July 2016 – straight after the referendum result — based on this result, there is the likelihood of more bad news to come.

Supply chain managers voiced their deep anxieties over Brexit’s continuing impact, as some supply chains were redirected away from the UK, resulting in a drop in total new orders for the first time since October.

“Clients in Europe and Asia were particularly reluctant to commit to new business across all sectors, but the intermediate sector (this relates to materials or items that are the final product of a process but are then used in the production of some other goods) suffered the worst fall in seven years, as the pipeline of work dried up.

“It has now become obvious that the stockpiling activities of the last few months were propping up the sector’s performance.”

Lee Collinson — head of manufacturing, transport and logistics at Barclays Corporate Banking — said: “The Manufacturing PMI came in well below expectations in May, posting the first fall in almost three years.

“We thought we might get a couple more months’ grace before the figure crossed the 50 threshold, but while the scale of the shift is more significant than anticipated, it was clear we were going to experience a dip sooner or later, as some of the stockpiling that took place earlier in the year began to unwind.

"Manufacturers have been warning for some time that they are trying to navigate a number of headwinds, and the hard-to-predict Brexit negotiations have certainly made investment decisions more difficult, with falling car production indicative of the issues being faced.

“It’s not all about Brexit though, with weaker global demand already taking a bite out of exports.

“Reassuringly, there is a note of optimism looking further ahead, with half of manufacturers expecting their output to be higher a year from now, and only 7% expecting a contraction.

“Manufacturers are right to retain this outlook, as they have weathered tricky circumstances before, but much will depend on how the twin challenges of Brexit and wider global trade dynamics are resolved.”

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