Production volumes were broadly unchanged during the latest survey month, as the growth rate of new order inflows remained subdued (albeit slightly quicker than in April). Where an increase in new business was registered, this generally reflected a further increase in new work from domestic clients. In contrast, the level of new export business fell for the fifth consecutive month.
Where weakness in new order inflows was reported, manufacturers linked this to softer global economic growth, challenging exchange rates and ongoing client and market uncertainties. The latter partly reflected the forthcoming EU referendum.
According to a special question added to the survey this month, over a third of respondents have seen a detrimental impact on their business from uncertainty regarding the forthcoming vote, within which 8% indicated that the impact was ‘strongly detrimental’.
Further details are provided in the research note following this press release.
May saw further growth of production and new business in the intermediate goods sector, alongside a return to expansion in both variables at consumer goods producers. The investment goods industry remained in the doldrums, however, with downturns in output and new orders continuing.
Manufacturing job losses were registered for the fifth straight month in May. However, the rate of reduction eased to a three-month low and was only modest overall.
Job cuts were focused on the weaker performing investment goods industry. In contrast, new order growth in the consumer and intermediate goods sectors encouraged firms to increase employment.
The level of work-in-hand (but not yet completed) at UK manufacturers fell markedly during May.
Furthermore, the rate of depletion accelerated to its fastest in just over three years. Available spare capacity and the use of existing finished goods inventory to settle contracts both contributed to the latest reduction in backlogs of work.
May saw stores of inputs and finished products both depleted further. In both cases this reflected intentional depletion programmes, although lower levels of purchasing activity also contributed to the reduction in pre-production inventories.
The rate of contraction in input buying volumes was among the quickest seen over the past three years. Reductions were seen across the consumer, intermediate and investment goods sectors. Lower demand for raw materials also meant that suppliers lead times were broadly unchanged.
Price pressures moved to the upside during May. Both input costs and output charges rose following sustained sequences of decline. Companies linked higher costs to a firming of commodity prices (notably for oil and metals) that was passed on to clients.
Rob Dobson, senior economist at survey compiler Markit, said: “The manufacturing sector continued its lacklustre start to 2016. Although key indicators for output, new orders and the headline PMI all ticked higher in May, the latest survey is still consistent with around a 0.8% quarterly decline in the official ONS Manufacturing Production Index.
“The sector will therefore remain a drag on broader economic growth, adding pressure on the service sector to sustain the upturn in GDP.
“Although the domestic market remains positive for manufacturers, especially for producers of consumer and intermediate goods, softer global growth is weighing on new export orders. There are also signs that increased client uncertainty resulting from slower growth and the forthcoming EU referendum is weighing on investment spending. Manufacturers will have to wait and see whether this trend improves in the coming months.”
