UK manufacturing PMI edges back into the black

The UK manufacturing sector crept back above the neutral growth mark of 50.0 in May, according to the latest Markit/CIPS Purchasing Managers’ Index (PMI).

Though with a PMI score of 50.1, UK manufacturing has continued its “generally lacklustre” start to the year.

The previous PMI (April), saw the score dip below the critical no-change gauge of 50.0 for the first time in more than three years. The score of 49.2 was chalked up to a decline across both production and new orders.

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May’s slight PMI lift was largely attributed to an increase in new work from domestic clients, with the level of new export business falling for the fifth consecutive month.

According to the manufacturers surveyed, the lack of new orders was driven by softer global growth, challenging exchange rates, and ongoing client and market reservations.

Continuing uncertainties surrounding the imminent EU referendum was also highlighted as a contributing factor.

With the referendum firmly on the horizon, Markit/CIPS included an additional question to the survey.

In response, more than a third of respondents said that they had seen, “a detrimental impact on their business from uncertainty regarding the forthcoming vote.”

You can read more about how manufacturers responded to Markit/CIPS’ questions on the upcoming EU referendum here.   

Lee Hopley, chief economist, EEF.
Lee Hopley, chief economist, EEF.

Commenting on the latest PMI figures, chief economist at EEF, Lee Hopley said: “This is a welcome move back into the black after last month’s wobble and continues the tale of two divergent manufacturing sectors.

“Intermediate goods, such as chemicals and electronics, are heading higher while investment goods continue to suffer from the low oil price and subdued investment plans at home and in global markets.

“However, the very modest improvement in activity wasn’t enough to prevent further job losses across the sector, but the additional analysis suggests that this is a demand story rather than a Brexit one.

“That said, if the referendum uncertainty fades this month, the depressed export picture and declines in backlogs don’t offer too much comfort that a strong bounce back is on the cards in the short term.”

Head of manufacturing at Lloyds Bank Commercial Banking, Dave Atkinson said: “Maintaining the status quo has become increasingly important in a period of uncertainty, and it’s no surprise that manufacturing firms have been more cautious with growth plans in the current global climate.

“Innovation and adapting new technologies are key for the long-term growth prospects of the manufacturing industry, which has never been more important to the success and advancement of the national economy.”

Head of manufacturing at Barclays, Mike Rigby noted: “Although just edging back over the stagnation mark, today’s figures continue to disappoint.

“Uncertainty ahead of the EU referendum, a steel industry in a state of flux and the effects of a slowing global economy continue to squeeze performance. Without the much-needed increase in levels of investment and a more concerted and targeted export drive, it’s not very clear at the moment where faster growth is going to come from.”

Partner and head of industrial manufacturing in the UK for KPMG, Stephen Cooper said: “While any improvement in the PMI for the UK is to be welcomed, the main areas of positivity come from domestic activity, rather than from the export market, from which new business has fallen for the fifth consecutive month.

“Job losses continue in the UK, also for the fifth month in a row, albeit with the rate of reduction at a three month low. This may be expected to continue against the backdrop of the EU referendum and wider concerns on manufacturing growth more generally in Europe and elsewhere.

“Indeed, with over a third of respondents to the PMI survey saying that the issue of the UK’s potential exit from the European Union is having a detrimental impact on their business, manufacturers should now be working through the impact this might present, whilw being realistic about the risks.

“Amid all the uncertainty, having a “plan to plan” identifying the boardroom top priority list for the morning of June 24 in the event of an exit vote is well worthwhile.”