UK manufacturing growth contracts in 'atmosphere of deep unease'

Will Green is news editor of Supply Management
3 May 2016

Growth in the UK manufacturing sector has slumped into negative territory for the first time in three years, according to a survey of buyers.

The Markit/CIPS UK Manufacturing Purchasing Managers’ Index slipped to 49.2 in April, below the 50 no-change position and compared with a revised reading of 50.7 in March.

Companies attributed the deterioration to a combination of softer growth in domestic demand and a fall in new business from abroad. There were also reports that uncertainties around the oil and gas and retail sectors and the upcoming EU referendum has led some clients to delay spending.

The headline index was dragged lower by lacklustre trends in production and new orders and declines in both employment and stocks of purchases.

David Noble, group CEO, CIPS, said: “An atmosphere of deep unease is building throughout the manufacturing supply chain, eating away at new orders, reducing British exports and putting more jobs at risk.

“In a month that saw the collapse of BHS, the troubles in the British high street are being felt just as keenly in Britain’s factories. Manufacturers are compensating for stalling new order growth by depleting their stocks, and dramatically cutting the amount of raw materials they buy from suppliers.”

Weakening performance was mainly felt in the consumer and investment goods sectors, with both registering declines in production and new work.

In terms of prices, deflationary pressures continued to ease in April, with average input prices falling at the slowest pace since June 2015, while the rate of decline in selling prices was only marginal.

Average vendor performance improved for the first time in almost three years, but this was mainly the result of reduced demand among manufacturers for raw materials and a preference for lower inventory holdings.

Rob Dobson, senior economist at Markit, said: “On this evidence manufacturing production is now falling at a quarterly pace of around 1%, and will likely act as a drag on the economy again during the second quarter and putting greater pressure on the service sector to sustain GDP growth. The manufacturing labour market is also being impacted, with the data signalling close to 20,000 job losses over the past three months.”

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