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Business & Economy

UK manufacturing output contracts at fastest rate since 2012

UK manufacturing output and order volumes have fallen at the fastest rate since July 2012 according to a UK Manufacturing PMI from IHS Markit.

The seasonally adjusted purchasing managers’ index fell to a three-month low of 47.8 in March, down from 51.7 in February. A score of less than 50 suggests a contraction in the sector.

As well as the reduction in new business, the manufacturing industry also saw deep falls in the labour market as UK factories cut jobs at the fastest rate since 2009.

Transport delays and shortages of raw materials as a result of COVID-19 and subsequent mitigation effects also led to the steepest increase in vendor lead times in the history of the IHS survey, further disrupting production and supply chains.

The news comes after signs of improved manufacturing activity at the start of this year, where the PMI reached a 10-month high.

The only notable exceptions were food production and pharmaceuticals, which have both seen an increase in demand because of the pandemic.

Accountancy firm EY believes that these figures show the UK suffered a serious downturn in March and estimates that GDP will contract by around -0.5 per cent in Q1 2020 and possibly by -12 per cent in Q2.

Year on year, EY expects the UK economy to shrink by -5.8 per cent, a greater amount than what followed the 2008 financial crisis.

Howard Archer, chief economic adviser to the EY ITEM Club, commented: “The purchasing managers’ survey showed manufacturing activity relapsing back into contraction in March as coronavirus increasingly impacted on the economy.

“The manufacturing sector had shown signs of improvement at the start of 2020 as activity benefitted from reduced uncertainty since December’s decisive General Election leading to a greater willingness by some companies to spend and increased business activity.

“March’s reading of 47.8 took the PMI back below the 50.0 level which indicates unchanged activity.

“Furthermore, it should be noted that the headline PMI understates the weakness of the manufacturing sector as a marked positive contribution came from a lengthening of supplier delivery times.

“Indeed, Markit indicated that the lengthening of delivery times was the greatest since the survey began in 1992.

“This is normally seen as reflecting strong demand and a positive – but in this instance it was due to the disruption to supply chains stemming from the disruption to manufacturing inputs because of factory shutdowns around the world and shipping delays due to coronavirus.”

The UK manufacturing industry is the 9th largest in the world, employs 2.7 million people and contributes 11 per cent of UK GVA.