UK manufacturing suffers a surprise downturn as PMI dips below neutral
2 mins read
A manufacturing sector that "lost considerable momentum during February" and is cutting jobs at the fastest rate for more than three years has raised concerns that weak demand at home and abroad will cause it to go on struggling.
Fresh data on the sector's health comes from February's Markit/CIPS Purchasing Manager's Index(PMI), which has slipped below the neutral 50.0 mark, the first sub-par reading since last November. The PMI recorded 47.9, down from January's 50.5.
Output, new orders and employment all posted net reductions since January. Purchasing activity was also cut markedly, as manufacturers continued to signal a preference for lower stock holdings.
Chris Williamson, chief economist at survey compiler Markit said the return to contraction of the manufacturing sector was a big surprise and represented a major set-back to hopes that the UK economy could return to growth in the first quarter, thus avoiding a triple-dip recession.
"The data so far this year point to manufacturing output falling by as much as 0.5%, meaning a strong rebound is needed in March to prevent the sector from acting as a drag on the economy as a whole in the first quarter," he said before adding more optimistically that there were good reasons to believe the PMI may turn up again in March. "The bad weather at the end of January looks to have had a knock-on effect to production and orders in February via disrupted deliveries. Second, the Chinese New Year holidays are having an increasingly disruptive impact on global trade flows as each year goes by and appear to have had a stronger than usual effect in February.
Third, the weaker pound may help exporters in coming months. The worry, however, is that the underlying picture remains one of a sector that is clearly continuing to struggle in the face of weak demand both at home and abroad, as reflected in the fact that manufacturers are cutting employment at the fastest rate since late-2009. At the moment these data point to scant evidence of the economy showing any significant rebalancing towards manufacturing."
David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply was concerned about the dearth of encouraging signs for the future. "The sector witnessed a fall in new orders at home and a continued lack of demand abroad and, perhaps most ominously, we saw the greatest fall in employment for 40 months. Moreover, the sector seems to continue to grapple with the ongoing problems of playing hostage to European fortunes, whilst unable to fully take advantage of emerging growth markets," he said.
EEF Chief Economist Lee Hopley said the latest PMI data was "disappointing" and, despite mitigating circumstances, there was "no denying that underlying momentum in the sector remains weak".
