UK manufacturers saw weaker orders and a massive increase in unsold stock in May according to the latest survey snapshot of the sector.
The Purchasing Managers’ Index for May crept up to 54.4 in the month, from the 17-month low of 53.9 in April.
But incoming new business was the weakest in almost a year and inventories jumped by the largest amount in the 26-year history of the industrial survey.
“At first glance, the mild acceleration in the rate of output growth and rise in the headline PMI would appear positive outcomes given the backdrop of the slowdown seen in manufacturing since the turn of he year. However, scratch beneath the surface and the rebound in the PMI from April’s 17 month low is far from convincing,” said Rob Dobson of IHS Markit, which compiles the survey.
Manufacturing accounts for around a tenth of the UK economy.
The Office for National Statistics estimates that the sector has slowed down sharply in the first quarter of 2018, after booming in the second half of 2017, with growth of just 0.2 per cent in the three months to March.
Surveys suggest that while exporting manufacturers have benefited to some extent from the post-Brexit vote slump in sterling they are also concerned about future trade and customs arrangements with the rest of the European Union, which is eroding investment.
“What manufacturers could really do with now is some degree of clarity over the future relationship with the EU as the continuing uncertainty over Brexit negotiations can’t be helping them with their investment intentions,” said Mike Rigby, head of manufacturing at Barclays.
Misleading uptick
“The decline in the new orders balance in May...solely reflected weakness in domestic demand; the export orders balance reversed some of its recent decline. Growth in external demand, however, will continue to slow, now that nearly two years have passed since sterling’s depreciation,” said Samuel Tombs of Pantheon.
Earlier this week the manufacturers’ trade body, EEF, severely criticised the “maximum facilitation” idea, favoured by Brexiteers in the Cabinet, as a future replacement for the customs union with the EU.
“It may have some long-term benefits, but suggesting max fac is a solution to our immediate problems is a non-starter,” said the EEF chief executive Stephen Phipson.
