Manufacturers in eurozone hit by even sharper slowdown than in Britain

This article is more than 1 year old

This article is more than 1 year old

The government has been sent a warning signal that Brexit uncertainty is pushing Britain’s manufacturing sector into recession as the latest industry health check showed the weakest performance since the aftermath of the EU referendum three years ago.

Order books shrank rapidly after a period when businesses had been stockpiling goods in the run-up to the original Brexit deadline at the end of March, according to the regular monthly survey conducted for the Chartered Institute of Procurement & Supply by the research group IHS Markit.

No-deal Brexit would be economic lunacy, say UK manufacturers Read more

The purchasing managers’ index – a closely watched guide to the strength of the manufacturing sector – fell from 53.1 points in April to 49.4 in May. A finding below 50 indicates contraction.

Q&A What are PMIs? Show Hide The purchasing managers' indices, or PMIs, track services sector companies, manufacturers and building firms around the world. They measure activity, output, business confidence and hiring levels, to produce a health check on how these sectors are performing. PMIs are compiled each month from interviews with 'purchasing managers' at thousands of companies. They produce a single headline figure – anything above 50 indicates a sector is growing, while a figure below 50 shows a contraction. Economists watch these surveys closely as they look ahead to coming months, while the official data, such as gross domestic product and retail sales, tends to be more backward-looking.

With the deepening global trade war adding to industry’s woes, Cips/Markit said it was one of the sharpest declines in the index in six and a half years.

Manufacturers in the eurozone are suffering an even sharper slowdown than their counterparts in Britain, IHS Markit said, with the purchasing managers’ index falling from 47.9 in April to 47.7 in May.

The UK survey found that the seven-month delay to Brexit had been followed by a reduction in domestic and overseas orders. The lack of clarity about the outcome of Brexit had led to some companies diverting supply chains away from the UK, while weak production led to a second month of job losses.

Manufacturers remain hopeful that a Brexit deal will eventually be secured, with 49% expecting output to be higher in a year’s time against 7% expecting it to be lower.

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Rob Dobson, a director at IHS Markit, said: “The UK manufacturing sector was buffeted by ongoing Brexit uncertainty again in May. The trend in output weakened and, based on its relationship with official ONS data, is pointing to a renewed downturn of production.”

Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said: “Concern for manufacturers has deepened this month as the sector’s performance shrank in May and tumbled into contraction. With one of the fastest shrinking rates seen in six and a half years and the biggest drop since July 2016, straight after the referendum result, based on this result, there is the likelihood of more bad news to come.”

The Cips/Markit survey came after the UK’s leading manufacturing organisation, Make UK, reported weak investment and warned those battling to take over from Theresa May as prime minister that a no-deal Brexit would be “economic lunacy”.