Index shows slowing of growth in UK industry

Posted on 1 Jun 2011 by The Manufacturer

The Purchasing Managers’ Index (PMI) fell to a 20-month low in May, stoking British manufacturers' fears that stagnation has set in.

After posting 54.4 in April, the PMI has fallen steadily over the past 20-months to 52.1, even though it remains above the neutral point of 50. Manufacturing production fell, as well as a reduction in new orders. Both these began to rise in June and July 2009 respectively. Factors affecting this downward trend are said to include weaker domestic market conditions, slower market export growth and the higher than usual number of bank holidays over May.

Rob Dobson, senior economist at Markit, the financial information services company said: “Domestic market weakness was the main drag on order books and output. However, this was exacerbated by the additional bank holidays in late April, which fell during the early part of the latest survey period, and ongoing supply-chain disruption following the Japanese earthquake.”

“Consumer goods producers and small-scale manufacturers have been hit hardest by the slowdown,” he added.

Consumer goods experienced the sharpest downturn in production and new orders, with the intermediate goods market also showing signs of decreasing strength in the same areas. While export markets have grown over the past eight months, the growth has slowed to the lowest in the same period. Markets such as Brazil, China, France and Russia have all increased their levels of demand from UK manufacturers.

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply painted a more optimistic picture: “[The situation] may not be as disheartening for the coming months, as many of these drags are temporary.”

“With the level of export orders still rising and the rate of inflation easing somewhat, we expect that May will come to be seen as an anomaly,” he reflected.

Positive analysis of the PMI was forthcoming from Mark Lee, head of manufacturing, Barclays Corporate too: “Against a darkening global backdrop … sentiment amongst UK manufacturers remains marginally in positive territory, for now,” he said. “One positive in UK manufacturing today is increasing levels of liquidity in the sector. As recent EEF figures demonstrate, in part this is because bank lending to the sector is on the rise,” he added.

Juergen Maier, managing director of Siemens Industry UK, thinks this is a temporary setback. “Whilst it points to a slightly less buoyant mood, it must not affect investment decisions. As a sector, we need to stay extremely resilient on that and keep investing to improve operational and energy efficiencies. Only in this way can we ensure the mini manufacturing resurgence we have seen over the last 18 months is sustained well into the future.

“Our manufacturing base needs ongoing support from the coalition, financers and manufacturers to create an environment where investment in R&D and continuous improvement in productivity levels is possible.”

To see the report in full, go here.