Britain’s manufacturers shed jobs and cut prices last month as they struggled with tough export markets amid a global economic slowdown.
A closely watched survey of the sector suggested it made little contribution to the UK’s overall economic growth in the first quarter. Reflecting a crisis in Britain’s steel industry, a slowdown in the oil sector and sluggish demand overseas, manufacturing registered one of its weakest performances for three years, according to the Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) report.
That echoed a downbeat picture of eurozone manufacturers in a survey for the region also released on Friday. But there was brighter news from China’s factory sector where activity expanded in March for the first time in nine months, according to an official poll.
#UK manufacturing output growth unchanged from Feb’s 7-month low. Job losses recorded for third straight month. pic.twitter.com/Tan5vULfRT
— Markit Economics (@MarkitEconomics) April 1, 2016
The UK report showed manufacturing employment fell for the third month running as new export business continued to decline.
The headline index on the PMI report edged up to 51.0 in March from February’s 34-month low of 50.8. That was above the 50-mark that separates growth from contraction but left the average reading for the first quarter of 2016 at just 51.6, equalling the lowest recorded since the PMI first moved back above the neutral 50.0 mark in early 2013.
Rob Dobson, senior economist at survey compilers Markit commented: “The UK manufacturing sector remained in the doldrums during the opening quarter of the year. Although March saw modest improvements in the trends for production and new orders, industry is still hovering close to the stagnation mark and will struggle to make a meaningful contribution to the next set of GDP growth figures.”
Manufacturers continued to rely on the domestic market for new business in March as factories reported that softer global economic growth dented new work from key trading partners such as the US and Europe. Some companies also said the weak oil and gas market had hurt sales to some regions – especially the Middle East.
The pound has weakened in recent months amid worries over the outcome of the UK’s EU referendum in June. On Friday, the pound weakened further, hurt by the gloomy manufacturing survey and as tight opinion polls fanned Brexit worries. The pound was down more than 1% against both the dollar and the euro.
A weaker currency may help exporters, by making their goods cheaper overseas. However, Dobson warned the pound’s move was not all good news.
“Although the drop in sterling may add some bounce to export performance in coming months, the exchange rate is likely to cause as many issues on the cost side through higher import prices as it aids for demand,” he said.
That could add to pressure on manufacturers’ margins, he added. The PMI report showed average factory gate prices were cut last month as companies responded to increased competition and passed on lower raw material costs.
Manufacturers’ organisation EEF said the latest downbeat report was little surprise given companies have been grappling with weak global demand and a low oil price for more than a year. Cheaper crude has made oil companies cut back on spending and so their orders for machinery have collapsed.
“The data confirms subdued activity across the sector at the start of the year, coming on the heels of a flat 2015,” said EEF chief economist Lee Hopley.
But there were glimmers of light from industries such as chemicals, rubber and plastics and electronics, which have been buoyed by low input costs and domestic demand thanks to a pick-up in construction activity, she added.
“Amidst the somewhat disappointing start to the year and the significant challenges facing the steel sector, which have once again come to the fore in recent days, there are still pockets of growth,” Hopley said.
Much of the global economic gloom which has hurt manufacturing has stemmed from China, where growth has slowed and the vast industrial sector has slumped. The latest news from the world’s second-biggest economy signalled that the manufacturing downturn may be easing off.
China’s official PMI rose to 50.2 in March, up from the previous month’s 49. Analysts polled by Reuters had predicted 49.3.
But Markit’s own manufacturing PMI for the eurozone suggest factories there continued to struggle to eke out growth. The Markit eurozone index rose to 51.6 in March, up from 51.2 in February.
#Eurozone manufacturing growth ticks slightly higher, but 'core' weakness weighs on sector https://t.co/S8DrjD7Reb pic.twitter.com/All3U0EPjB
— Markit Economics (@MarkitEconomics) April 1, 2016
Chris Williamson, chief economist at Markit, said: “Although the PMI ticked higher, March still saw the second-weakest improvement in manufacturing conditions seen for just over a year. The data suggest manufacturing grew by only around 0.2% in the first quarter, acting as a drag on the wider economy.”
