UK manufacturing slump intensified last month, PMI index shows

Manufacturing output in the UK fell more sharply last month on a continued fall in exports and lower market confidence.

The most recent UK Manufacturing Purchasing Managers’ Index from S&P Global and the Chartered Institute of Procurement and Supply came in at 47.1 in May, compared to 47.8 in April. Any number below 50 indicates contraction.

It is the tenth consecutive month that the country’s manufacturing sector has fallen amid inflationary pressures that are weighing on consumer incomes and profit margins.

A drop in performance was seen across all research components, such as lead times and supplier output, the latter being impacted in part by customer de-stocking, parts shortages and the bank holiday to celebrate the coronation of King Charles III.

Meanwhile, new export orders fell for a 16th consecutive month as post-Brexit trade restrictions encouraged European companies to source more parts locally.

The study also attributed stronger international competition and lower demand from mainland Europe and the United States to the drop in overseas sales.

Domestically, manufacturers were hit by poor market sentiment and another month of workforce reductions due to weaker demand and cost pressures.

Declines in new orders and production particularly affected the semi-finished and investment goods sectors.

However, manufacturers benefited from the first reduction in average input costs in three and a half years, while supply chain problems eased.

British businesses have struggled with skyrocketing energy bills for the past year and a half following the easing of Covid-related restrictions and the Russian invasion of Ukraine.

After peaking last summer, wholesale energy prices have since fallen by more than 80 percent, giving manufacturers much-needed hope.

Still, Cips chief economist Dr John Glen warned that further rate hikes and “intractable” inflation “will continue to keep entrepreneurs awake at night.”

The Bank of England has raised UK key interest rates 12 times in a row, from just 0.1% in December 2021 to 4.5% in May, to combat high inflation.

The consumer price index fell from double-digit levels to 8.7 percent in April, but another rate hike is expected at the June 22 meeting of the BoE’s monetary policy committee.

Shortly afterwards, the International Monetary Fund predicted that the UK economy would avoid recession in 2023, though it admitted the country’s prospects “remain subdued”.

Dave Atkinson, SME & mid corporates head of manufacturing at Lloyds Bank, said: ‘Uncertainty remains about how sustainable growth is in the sector after almost a year of contraction with mixed forecasts about what’s to come for the economy.

“Manufacturers want to see a renewed focus behind a UK industrial strategy, which will provide stability and confidence for long-term investment.”