UK manufacturing slips back into contraction amid Red Sea disruption fears

New figures confirmed that the manufacturing sector slipped back into contraction in April as the sector suffered from uncertain demand and disruption in the Red Sea.

S&P’s purchasing managers’ index (PMI) for the manufacturing sector showed a reading of 49.1 in April, slightly higher than the ‘flash’ estimate of 48.7 but down from 50.3 in March. The 50 mark separates growth from contraction.

The survey confirmed that the manufacturing sector slipped back into contraction after March’s slight uptick. Prior to last month, manufacturing had been in contraction since July 2022.

“The sector is still besieged by weak market confidence, client destocking and disruptions caused by the ongoing Red Sea crisis, all of which are contributing to reduced inflows of new work from domestic and overseas customers,” Rob Dobson, director at S&P global market intelligence, said.

Dave Atkinson, SME & Mid Corporates head of manufacturing at Lloyds Bank, agreed. “The economic headwinds that have been affecting the sector this year are still bearing down on firms,” he said.

The downturn was mainly the result of output being scaled back in both intermediate goods, which are used in the production of other goods, and investment goods, such as machinery and equipment.

In contrast, the consumer goods industry continued to strengthen, with output and new orders rising for the second consecutive month.

Exports remained subdued in April with new export business falling for the 27th successive month. Firms reported weak demand in Germany, the US and Asia. The survey highlighted “strong competition” and distribution issues as factors explaining the continued downturn.

Reflecting continued weakness in manufacturing, staffing levels were reduced for the 19th consecutive month.

The survey will also raise concerns at Threadneadle Street. Input prices accelerated at their fastest pace since February 2023 with some respondents linking this to increased shipping costs due to the Red Sea crisis.

Manufacturers’ selling prices rose in response, taking output charge inflation to an 11-month high.

Policymakers at the Bank of England are looking for signs that inflation is on its way back down to the two per cent target, but are concerned that the final mile might prove sticky.

“The news on the prices front is also worrisome for those looking for a sustainable path back to target (consumer price) inflation, with cost pressures growing in industry and feeding through to higher selling prices at the factory gate,” Dobson said.