Although the UK manufacturing sector contracted slower than expected in January, economists warn that output remains constrained by consumer confidence.
The final S&P Global and Chartered Institute of Procurement and Supply buying managers’ index (PMI), which is a composite of the S&P Global and Chartered Institute of Procurement and Supply, fell from 50.3 to 49.1 last month. This sub-50 reading, which indicates contraction of the sector is higher than the initial estimate by City analysts.
In the manufacturing sector, growth has been negative for 13 out of 14 months.
The manufacturers said that the sluggishness in activity was due to clients reducing their spending on factory products because of disruptions in trade flows at the Red Sea. After a string of attacks by Houthi rebels from Yemen, shipping companies diverted ships away from the Suez Canal, increasing delivery times.
The pressure on demand was also attributed to uncertainty about UK economic trajectory, and the fact that businesses were running out of inventory.
Rob Dobson of S&P Global Market Intelligence said that the UK manufacturing sector experienced a new downturn in April as production and new orders declined following a short-lived rebound in March.
The sector continues to be plagued by low market confidence, destocking by clients and disruptions due to the ongoing Red Sea Crisis. This is resulting in a reduction of work coming from both domestic and international customers. There are reports that it’s difficult for the sector win new contracts from Europe, America and Asia.
The manufacturing sector has seen its employment levels decline for the 19th consecutive month. Job losses were concentrated in the consumer goods and intermediate goods industries. Exports and new domestic orders both dropped.
Companies have raised their final goods prices the most since April of last year due to rising prices for manufacturing inputs such as metals, energy and transportation.
James Brougham is a senior economist with Make UK, a representative body of the manufacturing industry. He said that the sector was returning to the same situation as he found it merely a year earlier, characterized by low demand, high prices and no clear path to prosperity. If supply-side inflation continues, the Bank of England will almost certainly delay any decision to reduce rates or even raise them to the extreme.
The headline UK inflation rate has fallen to 3.2%, its lowest since September 2021. This is due to the slowdown in food and energy prices.