UK manufacturing remains subdued in May

CIPS 1 June 2016

The UK manufacturing sector maintained its generally lacklustre start to 2016. At 50.1 in May, up from 49.4 in April, the seasonally adjusted Markit/CIPS Purchasing Managers’ Index® (PMI® ) edged only negligibly back above the neutral mark of 50.0.

CIPS/Markit UK Manufacturing PMI® UK Manufacturing

Key points:

- UK Manufacturing PMI edges back above stagnation mark to 50.1

- Growth registered in consumer and intermediate goods sectors

- Input costs and average selling prices both move higher

The UK manufacturing sector maintained its generally lacklustre start to 2016. At 50.1 in May, up from 49.4 in April, the seasonally adjusted Markit/CIPS Purchasing Managers’ Index® (PMI® ) edged only negligibly back above the neutral mark of 50.0.

Production volumes were broadly unchanged during the latest survey month, as the growth rate of new order inflows remained subdued (albeit slightly quicker than in April). Where an increase in new business was registered, this generally reflected a further increase in new work from domestic clients. In contrast, the level of new export business fell for the fifth consecutive month.

Where weakness in new order inflows was reported, manufacturers linked this to softer global economic growth, challenging exchange rates and ongoing client and market uncertainties. The latter partly reflected the forthcoming EU referendum.

According to a special question added to the survey this month, over a third of respondents have seen a detrimental impact on their business from uncertainty regarding the forthcoming vote, within which 8% indicated that the impact was ‘strongly detrimental’. Further details are provided in the research note following this press release.

May saw further growth of production and new business in the intermediate goods sector, alongside a return to expansion in both variables at consumer goods producers. The investment goods industry remained in the doldrums, however, with downturns in output and new orders continuing.

Manufacturing job losses were registered for the fifth straight month in May. However, the rate of reduction eased to a three-month low and was only modest overall.

Job cuts were focused on the weaker performing investment goods industry. In contrast, new order growth in the consumer and intermediate goods sectors encouraged firms to increase employment.

The level of work-in-hand (but not yet completed) at UK manufacturers fell markedly during May. Furthermore, the rate of depletion accelerated to its fastest in just over three years. Available spare capacity and the use of existing finished goods inventory to settle contracts both contributed to the latest reduction in backlogs of work.

May saw stores of inputs and finished products both depleted further. In both cases this reflected intentional depletion programmes, although lower levels of purchasing activity also contributed to the reduction in pre-production inventories.

The rate of contraction in input buying volumes was among the quickest seen over the past three years. Reductions were seen across the consumer, intermediate and investment goods sectors. Lower demand for raw materials also meant that suppliers lead times were broadly unchanged.

Price pressures moved to the upside during May.

Both input costs and output charges rose following sustained sequences of decline. Companies linked higher costs to a firming of commodity prices (notably for oil and metals) that was passed on to clients.

Rob Dobson, Senior Economist at survey compilers Markit: “The manufacturing sector continued its lacklustre start to 2016. Although key indicators for output, new orders and the headline PMI all ticked higher in May, the latest survey is still consistent with around a 0.8% quarterly decline in the official ONS Manufacturing Production Index. The sector will therefore remain a drag on broader economic growth, adding pressure on the service sector to sustain the upturn in GDP.

“Although the domestic market remains positive for manufacturers, especially for producers of consumer and intermediate goods, softer global growth is weighing on new export orders. There are also signs that increased client uncertainty resulting from slower growth and the forthcoming EU referendum is weighing on investment spending. Manufacturers will have to wait and see whether this trend improves in the coming months.”

David Noble, Group Chief Executive Officer at the Chartered Institute of Procurement & Supply: “Like a moving car with its brakes on, the sector moved at a sluggish, haltering pace barely registering progress over the last month.

“Any small pockets of new work, were firmly in the driving hands of the domestic market as exports remained lacklustre, affected by the slowdown in global economic growth.

“Overall, job losses continued for the fifth month, though not all sub-sectors fared the same, as consumer and intermediate sub-sectors saw a rise in employment to meet a small rise in demand for their goods.

“Backlogs continued to drop and at the quickest pace for 38 months while purchasing activity slowed for a successive fourth month and firms held on to their cash. It is likely some manufacturers are maintaining a financial shield as a barrier against the uncertainties still affecting the sector, including those arising from the forthcoming EU referendum.”

Special Question on EU Referendum

Uncertainty with regards to the outcome of the forthcoming EU referendum is having a detrimental impact on the business performance of more than a third of UK manufacturers.

That’s according to the responses provided by PMI panellists to a special question added to the May Markit/CIPS UK Manufacturing PMI survey.

When asked whether the issue of the UK’s potential exit from the European Union is currently having an impact on their business, some 27% of the 427 companies that answered the question commented on a ‘detrimental’ effect, while a further 8% indicated that the impact was ‘strongly detrimental’.

Conversely, just 3% reported a ‘beneficial’ impact, while around 1% indicated a ‘strongly beneficial’ effect. Over half (51%) noted no significant impact. Over onein-ten respondents were meanwhile unsure whether ‘Brexit’ worries were a factor impacting on their business (11%).

Looking at the nature of the impact on manufacturers, nearly a quarter of respondents commented that Brexit ‘uncertainty’ was making it difficult to make business decisions, and conversely this seemed to be impacting adversely on their sales (nearly 30% of manufacturers indicated some form of detrimental impact in this area).

Costs at nearly 30% of companies were also being adversely affected by the EU referendum uncertainty, with a similar proportion also commenting on a detrimental impact on profits. Investment and planning decisions were similarly also hampered.

In contrast, nearly 80% of the panel reported no significant effect emanating from uncertainty over ‘Brexit’ on their ability to hire suitable staff.

Data were collected between May 12th -26th .

Survey data on the impact of the EU referendum relating to the construction and service sectors will be published in the coming two days.

For further details, please contact:

Joanna Vickers
Tel: +44 207 260 2234

For industry comments, please contact:


Trudy Salandiak
Tel: +44 1780 761576

Page Loading
Page Loading
Page Loading
Page Loading


This may take up to 30 seconds