UK manufacturing PMI signals contraction as new orders fall and stockpiling activity pauses

The UK manufacturing sector showed increased signs of renewed contraction in May, with the headline PMI falling below the neutral 50.0 benchmark for the first time since July 2016.

Manufacturers reported increased difficulties in convincing clients to commit to new contracts during May.

This mainly reflected the already high level of inventories following recent stockpiling activity in advance of the original Brexit date.

The total volume of new business placed fell for the first time in seven months.

The rate of contraction was the greatest since July 2016 and one of the fastest seen over the past six-and-a-half years.

Rob Dobson, Director at IHS Markit, said: “The UK manufacturing sector was buffeted by ongoing Brexit uncertainty again in May.”

“The headline PMI posted 49.4, moving back in contraction territory for the first time since July 2016, the month directly following the EU referendum result. The trend in output weakening 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, as already high stock levels at manufacturers and their clients led to difficulties in sustaining output levels and getting agreement on new contracts.”

“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. Some EU-based clients were also reported to have shifted supply chains away from the UK.”

“Although the consumer goods sector remained a positive growth spot, the intermediate and investment goods industries are still comparatively weak, in part reflecting the reverberation of the recent sharp slowdown in the automotive sector.”

“With these demand, purchasing and inventory trends likely to stay in play for the foreseeable future, the current manufacturing downturn may have to further run and will have negative ramifications for growth in the broader economy in the months ahead.”