UK manufacturing PMI drops to 34-month low
Mar 03, 2016
A closely watched survey of activity in the UK manufacturing sector has dropped to a 34-month low for February as economic uncertainty weighs on businesses.
The UK manufacturing purchasing managers’ index (PMI) fell sharply to 50.8 in February from a reading of 52.9 the previous month.
Economists had not been prepared for such a sharp fall having predicted a reading of 52.3.
Rob Dobson, senior economist at survey compilers Markit said:
The near-stagnation of manufacturing highlights the ongoing fragility of the economic recovery at the start of the year and provides further cover for the Bank of England’s increasingly dovish stance.
The breadth of the slowdown is especially worrisome. The domestic market is showing signs of weakening while export business continued to fall. Price pressures also remained firmly on the downside, with the survey signalling input costs falling at a double-digit annual pace and average factory gate selling prices showing a further decline. A lot of this is driven by the ongoing weakness of global commodity prices. However, there are also signs that weaker growth is driving up competition between manufacturers to secure new business and among their suppliers too.
Markit cautioned that the recent sharp drop in sterling came too late to be “fully reflected” in the latest survey results (a fall in the pound will obviously help exporters) but the cautious mood reflected in the latest PMI survey reinforces concerns over the risks facing the UK economy this year.
On that note, Samuel Tombs at Pantheon Macroeconomics said:
The recent depreciation of sterling will take at least a year to boost demand for exports, and it will force manufacturers to pass cost increases on to the fragile domestic market. Slowing growth in U.K. consumers’ real incomes, as inflation revives and the fiscal squeeze intensifies, won’t help either. As a result, the downturn in the manufacturing sector looks set to continue to constrain the pace of the economic recovery this year.
The Bank of England last month kicked the prospect of an interest rate rise further into the long grass as it kept rates on hold for the 83rd month.
Chancellor George Osborne recently warned that the UK economy is “smaller than we thought”, signalling a fresh round of spending cuts at this month’s Budget.
Dave Atkinson, head of manufacturing at Lloyds Bank Commercial Banking, said:
Continued volatility in the financial markets and signs of a slowdown in China are dragging on the confidence of the British manufacturing industry. The relative stabilisation of crude oil prices has lifted the market marginally, but will do little to allay fears of further falls in output.
Factory bosses will be tested in the coming weeks as the looming uncertainty of the EU Referendum starts to hang over management teams. Businesses will be exploring the impact it could have on their operations and investment in the long-term.
Source: Financial Times