UK manufacturing activity dropped significantly in March following the outbreak of coronavirus, according to a closely watched survey that showed output and new orders in the sector fell at the fastest rate since 2012.
The IHS Markit / Cips final manufacturing purchasing managers’ index, which surveys business leaders in the sector, fell to 47.8, a three-month low and down from 51.7 in February. Any reading below 50 indicates the majority of respondents reported a contraction in activity.
Economists said the PMI figure probably underestimated the weakness of the sector as it had been bolstered by longer supplier delivery times. These normally reflect strong demand but are currently caused by disruption in supply chains.
“The manufacturing sector was knocked sideways by the impact of Covid-19 and into contraction territory, experiencing some of the most challenging trading conditions since PMI records began,” said Duncan Brock, group director at the Chartered Institute of Procurement and Supply.
Difficulties obtaining raw materials, shipping delays and closed borders had led to the sharpest contraction in orders since 2012 and supply chains “crumbling”, he added.
Signs of a downturn were felt by almost all manufacturing subsectors, with transport the hardest hit, although food and pharmaceuticals managed to escape steep drops in activity.
Businesses reported that shortages had stretched supplier delivery times to the longest in 28 years, and business optimism dropped to a historic low. Employment fell at the fastest pace since 2009.
Howard Archer, chief economic adviser at EY Item Club, said the fall showed the importance of government interventions, such as the job retention scheme, which aim to keep the economy running.
But he said there was “no doubt” the UK was heading “for substantial contraction” and estimated a 12 per cent decline in gross domestic product in the second quarter compared with the previous three months.
Although February’s PMI index had showed signs of improvement in the sector, Brexit meant UK manufacturing faced challenges even before coronavirus hit.
In March, Make UK, the trade organisation for the sector, reported export orders for British manufacturers had turned negative for the first time since 2016.
The PMI figure for March was lower than an earlier “flash” reading of 48, released last week and based on 85 per cent of responses. However, both readings were stronger than the flash readings for sectors hit even harder than manufacturing: services activity, for example, fell to 35.7 from 53.2 in February, the lowest level since the survey began in 1996.
Samuel Tombs, chief economist at consultancy Pantheon Macroeconomics, said online ordering meant demand for goods would be less affected than demand for services.
But looming economic worries will dampen consumer spending and, because most responses to the March survey were received before the UK’s tougher lockdown measures were imposed, future surveys are expected to look even less optimistic.
“The PMI likely greatly understates the pace of the downturn now under way,” Mr Tombs said. “The manufacturing sector inevitably will struggle further.”
