Economic Buzz: UK manufacturing output and new orders contract as market uncertainties continue

The UK manufacturing sector continued to face tough operating conditions in May. A combination of weak global demand, turbulent trading conditions and rising cost burdens led to reduced levels of output, new orders, new export business and employment.

The seasonally adjusted S&P Global UK Manufacturing Purchasing Managers? Index (PMI) rose to a three-month high of 46.4 in May, up from 45.4 in April and above the earlier flash estimate of 45.1.

The PMI has nonetheless signaled a deterioration in operating performance in each of the past eight months. Four out of the five PMI components (output, new orders, employment and stocks of purchases) were consistent with contraction.

Manufacturing production contracted for the seventh consecutive month in May, as companies scaled back production in response to reduced intakes of new work from both domestic and overseas clients.

The downturns in output and new orders remained widespread by both sub-sector and company size definitions in May. Input price inflation eased to a five-month low in May.

May saw business confidence remain subdued by the historical standards of the survey, despite recovering to a three-month high.

Lackluster conditions at present combined with an increasingly uncertain outlook fixed manufacturers on a cost-conscious course during May. Employment, purchasing activity, input stocks and finished goods inventories were all lowered, as companies acted to protect margins and offset the impact of rising cost burdens from employer NICs, minimum wages and increased raw material costs.

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