The IHS Market/CIPS UK manufacturing Purchasing Managers’ Index® fell sharply from a reading of 53.1 for April to a contraction reading of 49.4 for May. This was the first time since July 2016 the PMI® has fallen below the neutral 50.0 benchmark and at one of the fastest rates in six-and-a-half years.
Manufacturers reported increased difficulties in convincing clients to commit to new contracts, mainly reflecting already high inventories following recent stockpiling activity. The total volume of new business fell for the first time in seven months.
New order inflows deteriorated from both domestic and export markets. New export business fell at the fastest rate in more than four years. Manufacturers reported lower demand from Asia and Europe. There were reports of clients diverting supply chains away from the UK, leading to lower demand from the EU.
The downturn in new orders impacted both output and employment. The production trend was the weakest for 34 months. An increase at large companies was mostly offset by contractions at SMEs. Manufacturing employment fell for the second consecutive month.
Sub-sector data indicated that much of the weakness was confined to the intermediate and investment goods industries. These both saw output, new orders and employment move lower. In contrast, consumer goods producers saw output, new business and staffing levels continue to rise.
Manufacturers remained optimistic. Almost 49% expected a higher output in 12 months’ time; 7% forecast contraction. Optimism was attributed to reduced uncertainty following Brexit, growth plans, recoveries in domestic and overseas demand, new product launches and using new technologies. However, global trade tensions and Brexit weighed on some firms’ outlooks.