Falling production in the UK consumer goods industry pulled production in the manufacturing sector down to a low of seven months in May amid wider signs of a global economic downturn.
Growth in the UK manufacturing sector slowed last month, according to a closely monitored study, driven by disruptions in the global supply chain, high inflation and falling new orders. An index for purchasing managers fell from 55.8 in April to 54.6 in May, in line with economists’ forecasts and above the 50 mark, which separates growth from contraction, according to S&P and CIPS, which conduct the surveys.
Rob Dobson, director of S&P Global Market Intelligence, said manufacturing companies, which account for just under a fifth of the UK economy, were facing a “headwind”.
“Factories report a slowdown in domestic demand, declining exports, lack of input and staff, rising cost pressures and increased concern about the prospects given geopolitical uncertainty. The consumer goods sector was particularly hard hit as household demand fell in response to the ongoing cost of living crisis,” he said. Dobson.
“Forward-looking indicators from the survey suggest a further downturn may be on the way. Business optimism fell to a 17-month low, and weaker demand growth led to surplus production, meaning inventories are rising.”
The global manufacturing sector has been hit by renewed Covid-19 lockdowns in China’s major cities hitting supply chains and rising inflation caused by rising post-war energy prices in Ukraine. Just under half of all UK companies reported that prices of materials, goods or services rose between April and March, according to the Office for National Statistics.
High inflation has led consumers to shift their consumption from more expensive goods to services such as tourism or leisure, after lockdown restrictions were lifted, trends that have been reported in the UK and Europe.
Activity in the euro area manufacturing sector fell to a 18-month low in May, recording the fourth consecutive fall in output, according to the PMI survey. The index fell from 55.5 to 54.6 last month, with new orders falling for the first time in two years. Germany’s production powerhouse was a rare exception, with production rising to a two-month high of 54.8 after hitting the war in Ukraine.
Inflation in the euro area hit a new record of 8.1 percent in May, with companies passing on their higher costs to consumers. A target for factory entry prices was the second highest ever recorded in the euro area PMI.
New figures yesterday showed that retail sales in Germany fell by worse than expected 5.4 percent between March and April, led by the worst decline in food sales since registrations began.
“The eurozone’s economy looks increasingly and uncomfortable depending on the services sector to sustain growth in the coming months,” said Chris Williamson, chief economist at S&P Global Market Intelligence.
“The power of use has therefore been hit hard, and often consumers in particular have shown an eagerness to shift consumption from goods to services and take advantage of looser pandemic travel restrictions.”
He said an undercurrent of uncertainty caused by the war in Ukraine and high inflation made customers more risk-averse, “pointing to deeper underlying downside risks to the outlook”.
