UK manufacturing growth hits 16-month low

·Business Reporter, Yahoo Finance UK
·3 min read
Photo of setter operator at work at UK manufacturing company in Birmingham
UK manufacturing: According to S&P Global and CIPS, May saw the weakest expansion rate since January 2021, bringing the purchasing manager’s index down to 54.6 during the month, from April’s 55.8. Photo: PA

Growth in the UK manufacturing sector slowed in May, hitting a 16-month low due to subdued output, fewer new orders, and reduced hiring.

British manufacturers were hit by weaker growth of domestic demand and falling exports last month, with ongoing disruption caused by stretched supply chains, rising cost pressures and the war in Ukraine also taking its toll.

According to S&P Global and CIPS, it was the weakest expansion rate since January 2021, bringing the purchasing manager’s index (PMI) down to 54.6 during the month, from April’s 55.8.

However, any reading above 50 still indicates growth. The PMI, which is calculated from five sub-indices, has remained above this neutral mark for 24 months.

Manufacturing output increased at the slowest pace since October 2021. The performance of the consumer goods industry was especially weak, with production falling for the first time in 15 months.

Read more: UK shop prices to rise as retail inflation hits highest since 2011

Growth slowed at intermediate goods producers, but accelerated in the investment goods category, the data showed.

May also saw the weakest increase in new work received during the current 16-month sequence of expansion. Supply chain issues, subdued client confidence, signs of economic slowdown, and reduced export order intakes all stymied new order growth.

New orders declined in both the consumer and intermediate goods sectors. The downturn in the consumer goods industry pointed to the impact on demand thanks to the current cost of living crisis.

However, investment goods producers saw new work intakes rise at a quicker pace.

Watch: How does inflation affect interest rates?

In addition to this, May saw new export orders decline for the eighth time in the past nine months.

Companies said lower inflows of new work from overseas were due to Brexit difficulties, transportation delays, shipping disruptions and the loss of orders due to the war in Ukraine.

The latest survey also revealed that selling prices rose at a rate close to April's record high. The increase was linked to inflationary pressures, material shortages and rising labour and energy costs.

UK manufacturing employment rose for the seventeenth successive month in May, albeit at the slowest pace since last October.

The outlook for the sector remained positive, with 55% of manufacturers expecting output to rise over the coming year. However, confidence slipped to a 17-month low, amid fears of a possible global recession, rising cost pressures and stretched world supply chains.

Read more: Is the UK heading into a recession?

“With both input costs and selling prices rising at rates close to April's peaks, the surveys suggest that there is no sign of the inflationary surge abating any time soon,” Rob Dobson, director at S&P Global Market Intelligence, said.

“Manufacturers continue to report issues getting the right materials, at the right time for the right price, and energy prices remain a major concern. Forward-looking indicators from the survey suggest that a further slowdown may be in the offing.”

Meanwhile, Simon Jonsson, UK head of industrial products at KPMG, said: “A combination of factors are weighing down UK manufacturing growth and output. Inflation is driving up the cost of doing business and dampening some consumer demand.

“The conflict in Ukraine has caused new and worsened supply shortages, while COVID-19 restrictions in China, and border friction closer to home, has also adversely impacted UK manufacturing over the last month.

“The challenge for manufacturers remains continuity of supply and an ability to successfully absorb or pass on increased costs. Factory floor efficiencies and effective use of data are all the more vital in this landscape.”

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