Recent figures show that UK manufacturing expanded at its slowest pace for over 17 months in April 2018. This weak Purchasing Managers’ Index reading comes right after official estimates suggested that the sector lost momentum significantly in the three months up to March 2018.
The slow in the manufacturing sector for April was far greater than expected, and wider fears are growing about what this means for the strength of the UK economy. The latest PMI (Purchasing Managers’ Index) survey arrived at 53.9. A reading above 50 is indicative of expansion, but this reading was a sharp fall from March’s reading of 55.1, and well below the 54.8 estimation of top City analysts.
Signs of a worrying decline
The indication is that the disappointing start to 2018 is likely to continue going into the second quarter. Economic conditions are weaker than had been anticipated, and the value of the pound has fallen once again. The UK services sector, which makes up 80% of the UK economy, also fell below consensus predictions in a further indication that the economy of 2018 is struggling significantly. This is all according to the Chartered Institute of Procurement and Supply, who sponsor the PMI survey.
The report, which was compiled by IHS Markit, also conveyed that the confidence of businesses in the manufacturing industry has fallen to its lowest level in 5 months, with firms expressing concerns about the implications of Brexit and possible barriers to the future of international trade. The growth of new business in exports slumped similarly, reaching a 10-month low alongside a 14-month low in the creation of new jobs.
A significant presence in UK economy
Manufacturing makes up 10% of the United Kingdom’s Gross Domestic Product (GDP), and the Office for National Statistics (ONS) published an estimation last week that there was a dramatic slow in the sector in the 3 months to March. The expansion was just 0.2%, after an abundant second half of 2017 aided by the weaker pound.
Weakest since November 2016
Estimates from the ONS indicated that the UK’s total GDP growth slumped to a lethargic 0.1% in the first quarter of 2018, raising concerns that our economy is beginning to stagnate.
The pound took a sharp tumble after last week’s GDP figures, and it slipped even further on Tuesday as traders pulled out of bets on the Bank of England’s Monetary Policy Committee (MPC), increasing interest rates at its next meeting which took place on 10 May.
Sterling had fallen 0.58% on that day against the US dollar, at $1.3688 following the publishing of the figures. The manufacturing survey is further proof that the economy has slowed fundamentally in 2018, adding more weight to the case for the MPC to cancel plans to raise interest rates in the latter stages of this month.
A wide-reaching problem
Another indication that there is a weakening of consumer sentiment is that the Bank of England reported on Tuesday that there has been a slump in the number of mortgage approvals in March, down to 62,914. This is well below the average of 64,544 for the 6 months before March, although many have suggested that the weather could be a contributing factor in depressing activity.
So what is the cause?
It is clear that concerns around Brexit are the primary cause of the declining output of the manufacturing sector. As the debate rages on about whether the UK should try to remain in the free market and the customs union, businesses are finding it increasingly impossible to make decisions about the future of exports and imports from EU countries. Waiting for certainty is causing lasting damage, as companies are having to scale back their operations and opt out of export deals as a measure to protect against the possibility that government negotiations regarding Brexit result in hefty tariffs being placed on imports and exports. Many companies are having to close facilities and lay off workers, far from the general goal of creating new jobs for UK citizens.
However the Brexit process pans out, it is important that the manufacturing sector is catered for to guarantee the prosperity of the economy in the future. It already plays a significant role in the GDP of our country, and the future of society is pointing towards increasing demand for the manufacture of all manner of items as populations grow and technology evolves. As more certainty appears in the Brexit process, we can hope to see a stabilisation of the manufacturing sector and, hopefully, a strong recovery that can sustain economic growth in the long term.
The UK has an historic tradition for manufacturing excellence, and although modern levels of manufacturing in the country are far lower than in the middle of the 20th Century, it is still a strong part of our identity. This recent downward trend needs to be reversed.