The UK manufacturing sector’s downturn eased somewhat in May, recording a three-month high and prompting talks that industry may have turned a corner.
According to this latest figures released by S&P Global, the seasonally adjusted UK Manufacturing Purchasing Managers’ Index (PMI) was 46.4 in May, a slight increase on April’s 45.4 and above the earlier flash estimate of 45.1. Nevertheless, the sector has now remained below the neutral 50.0 mark for the eighth straight month.
In May, manufacturers experienced a combination of weak global demand, turbulent trading conditions and rising cost burdens, which led to reduced levels of output, new orders, new export business and employment.
Indeed, four out of the five PMI components (output, new orders, employment and stocks of purchases) were consistent with contraction.
However, there were some tentative signs that the manufacturing sector may have turned a corner. Survey indices monitoring trends in output and new business rose for the second month in a row, signalling an easing in their respective downturns, and posted above the earlier flash estimates (which were calculated on 20 May compared to 27 May for final readings).
Commenting on the latest PMI figures, Rob Dobson, Director at S&P Global Market Intelligence said: “May PMI data indicate that UK manufacturing faces major challenges, including turbulent market conditions, trade uncertainties, low client confidence and rising tax-related wage costs. Downturns in output, new orders and new export business have continued, and business optimism has stayed subdued by the historical standards of the survey.
“Smaller manufacturers are experiencing the sharpest pinch, registering the steepest retrenchments in output and demand and seeing their confidence slump to a near record low. Job losses are also rising across manufacturing, with the rate of decline in employment gathering pace.
“There are some signs of manufacturing turning a corner though. PMI indices tracking output and new orders have moved higher in each of the past two months, suggesting the downturn is easing, and came in better than the earlier flash estimates for May. That said, trading conditions remain turbulent both at home and abroad, making either a return to stabilisation or a sink back into deeper contraction likely during the coming months.”
Dave Atkinson, UK Head of Manufacturing for SME & Mid Corporates at Lloyds, said: “Despite a fall in output, manufacturers continue to demonstrate resilience. Businesses continue to invest in plant and machinery, decarbonise their operations, and build premises to support long-term growth.
“As the cost of essential services like energy and water continues to edge upwards, manufacturers are showing that diversification – across both markets and sectors – is key, and adapting to change is one of the sector’s greatest strengths.”
Ginni Cooper, Manufacturing partner at MHA, commented: “The rather modest increase in PMI today is another signal of how tough the last six months have been for the sector.
“Since the PMI dipped below 50 in November last year companies have been focused on survival mode and the appetite and willingness of corporate boards and business owners to invest has been limited.
“The recent announcements on trade deals with India, the US and the EU have been broadly welcomed by our clients and the news last week of a new programme of foundation-level apprenticeships sounds promising but the sector is still crying out for stability and the chance to do some long-term planning.
“With the confidence their world is not going to be turned upside down by dramatic noises off from London or Washington.
“While manufacturers and their owners are by nature resilient and thankfully there has been little sign of companies going to the wall, the sector is very much still bumping along the bottom.
“The painful increases in employment costs are now baked into cashflow forecasts so some certainty (albeit negative) has now returned to manufacturing and if you are glass half full optimist, you could say it won’t get any worse, but it remains rather a depressing outlook overall.”
Cara Haffey, Leader of Industry for Industrials and Services at PwC UK said: “Ahead of a month with significant focus placed on spending reviews and defence announcements, manufacturers will welcome some cautious signs of positive change in May’s PMI reading, which improved to a three-month high of 46.4, from 45.4 in April. The report notes that some survey indices – monitoring trends in output and new business – rose for the second month in a row. This provides some encouragement, although this will be viewed against overall production contracting for a seventh consecutive month.
“While it is encouraging to see respondent confidence recover to a three-month high, areas of concern show little sign of respite, not least turbulent trade conditions, weakened economic outlooks and rising cost burdens. These challenges are set to continue during the year ahead, placing a pronounced focus on manufacturers incorporating agility and innovation into their operations and transformation plans.”
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