Tuesday, May 3, 2016
There’s a 'deep atmosphere of unease’ after British manufacturing shrunk for the first time in 3 years
Britain's manufacturing sector is in the worst shape it's been in for three years and there is a "deep unease" around the industry,according to the latest data released by Markit and the CIPS on Tuesday.
Markit's purchasing managers' index (PMI) for the UK manufacturing sector in April dropped on Tuesday morning, coming in at 49.2. That was lower than the 51.2 expected and substantially down from March's 51 figure.
The purchasing managers' index figures from Markit are given as a number between 0 and 100. Anything above 50 signals growth, while anything below means a contraction in activity — so the lower the number, the worse things look.
Tuesday's number is not only massively lower than expected, its also a pretty worrying indicator of what's going on in the manufacturing sector right now. Some of the contraction is down to uncertainty surrounding the Brexit referendum, but given that the PMI number has been on a downward trend since mid-2015, it doesn't go the whole to explaining what's causing the slowdown. Much of the slump is down to the "enduring volatility in the oil and gas industry" and "falling retailer confidence".
The numbers are very worrying given that the UK seems to be under-performing other major economies despite the UK's competitive position has improving. If the weakness in the industrial sector persists — which it looks set to do — it will likely drag on overall growth and make concerns about the lack of balance in the economy worse. This is especially true given that Markit's data suggests that the UK's trade outlook is liable to deteriorate further.
A drag on overall growth isn't really something Britain can afford right now given that GDP growth is already slowing, and the fact that the Bank of England is pretty much out of ammo to deal with flagging growth and inflation.
Here's what Markit says in its release alongside the data: "April saw the seasonally adjusted Markit/CIPS Purchasing Managers’ Index fall below the critical no-change mark of 50.0 for the first time since March 2013. At 49.2, from a downwardly revised reading of 50.7 in March, the headline index was dragged lower by lacklustre trends in production and new orders and declines in both employment and stocks of purchases."
And here's the chart to show just how bad things are:
Alongside the release, David Noble, the CEO of the CIPS, which works with Markit on the data, said (emphasis ours):
Recent fears over a stall in the UK’s manufacturing sector have now become a reality and driven the steepest decline in the manufacturing PMI for three years. An atmosphere of deep unease is building throughout the manufacturing supply chain, eating away at new orders, reducing British exports and putting more jobs at risk.
A sense of apprehension across the sector is being caused by enduring volatility in the oil and gas industry, falling retailer confidence and the uncertainty created by the EU referendum. In a month that saw the collapse of BHS, the troubles in the British High Street are being felt just as keenly in Britain’s factories. Manufacturers are compensating for stalling new order growth by depleting their stocks, and dramatically cutting the amount of raw materials they buy from suppliers.
Things aren't going to get any better soon either Markit says. Here's Rob Dobson, one of Markit's senior economists (emphasis ours):
Manufacturers are emphasising slower domestic demand growth and declining new export orders as the key weaknesses they are facing, amid rising uncertainty about the global economy, the oil & gas industry, retail sector and the EU referendum. With this backdrop unlikely to change in the coming months, the second quarter is likely to remain a bleak landscape for industry.