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Business & Economy

Manufacturing sector ‘slumps to 34-month low’, warns new report

The UK manufacturing industry slumped to a 34-month low in May amid a maelstrom of Brexit uncertainty, lower demand and falling employment, according to a new report.

The sector went backwards last month as company stockpiling disrupted new contract wins and Asian and European clients shied away from export deals.

The reversal in fortunes, revealed today (Monday, June 3) in the latest IHS Markit/CIPS Purchasing Managers’ Index® report (PMI), also weighed on output and employment, with production at its weakest during the past 34 months and employment falling for a second straight month.

The PMI study gave a reading of 49.4 for the sector in May, which was markedly below the 53.1 recorded in April and, crucially, lower than the 50 benchmark used to separate growth from contraction.

It was the first time the sector had dipped below the 50 mark since July 2016.

According to the PMI’s findings, manufacturers struggled to convince clients to commit to new contracts during May, which it said was reflective of companies’ higher inventories to counter Brexit.

It also revealed the total volume of new business placed fell for the first time in seven months, with the rate of contraction at its greatest since July 2016.

Furthermore, new order inflows deteriorated from both domestic and overseas sources, with new export business dropping for the second month running and at the quickest pace in over four-and-a-half years.

However, the report added manufacturers remained optimistic in May, with almost 50 per cent expecting output to be higher in 12 months’ time, compared to seven per cent forecasting contraction.

The optimism, said the study, was down to reduced Brexit uncertainty, growth plans, recoveries in domestic and overseas demand, new product launches and new technologies.

Rob Dobson, director at IHS Markit, which compiles the survey, warned the situation may get worse before it gets better.

He said: “The UK manufacturing sector was buffeted by ongoing Brexit uncertainty again in May.

“The trend in output weakened and, based on its relationship with official ONS data, is pointing to a renewed downturn of production.

“New order inflows declined from both domestic and overseas markets (and) demand was also impacted by ongoing global trade tensions, as well as by companies starting to unwind inventories built up in advance of the original Brexit date.

“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.”