Manufacturing slumps into contraction

Will Green is news editor of Supply Management
3 June 2019

The UK manufacturing sector slipped into contraction in May – the first time it has done so since July 2016, according to the latest PMI.

Manufacturers reported increased difficulties convincing clients to commit to new contracts, reflecting already high levels of inventories following stockpiling activity in the run-up to the original Brexit date.

The IHS Markit/CIPS UK Manufacturing Purchasing Managers’ Index slumped to 49.4 in May, down on 53.1 in April and against the neutral reading of 50.

New order inflows deteriorated from both domestic and overseas sources and the trend in production was the weakest during the past 34 months.

Much of the weakness was in the intermediate and investment goods sub-sectors, while consumer goods fared better.

Firms mentioned clients diverting supply chains away from the UK in light of Brexit, leading to lower demand from within the EU.

Duncan Brock, group director at CIPS, 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 impacts 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 from Europe and Asia were particularly reluctant to commit to new business across all sectors, but the intermediate sector 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.”

Output charges inflation rose to a three-month high, largely reflecting an acceleration for consumer goods, while purchase price inflation edged lower.

Rob Dobson, director at IHS Markit, said: “With these demand, purchasing and inventory trends likely to stay in play for the foreseeable future, the current manufacturing downturn may have further to run and will have negative ramifications for growth in the broader economy in the months ahead.”

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