UK manufacturing downturn continues amid Red Sea disruption
By Michele Maatouk
Date: Friday 01 Mar 2024
(Sharecast News) - The downturn in the UK manufacturing sector continued in February amid disruption from the Red Sea crisis, according to a survey released on Friday.
The S&P Global manufacturing purchasing managers' index ticked up to 47.5 from 47.0 in January. It came in above the flash estimate of 47.1 but still below the 50.0 mark that separates contraction from expansion for the 19th month in a row.
The survey found that the ongoing crisis in the Red Sea caused disruptions to both production and vendor delivery schedules. In several cases, manufacturers said these disruptions were driving up costs as they attempted to find alternative suppliers from more expensive markets closer to home.
Demand also remained weak, with new order intakes falling at the fastest rate since last October.
Rob Dobson, director at S&P Global Market Intelligence, said: "UK manufacturers faced challenging circumstances in February, as the ongoing impact of the Red Sea crisis delayed raw material deliveries, inflated purchase prices and impacted production capabilities. There were also knock-on effects for demand, as new export orders were hit by both supply disruptions and higher shipping costs. Production volumes subsequently contracted for the twelfth successive month while total new orders fell at the sharpest rate since October.
"The impacts were felt particularly hard on the price and supply fronts. Input cost inflation hit an 11-month high, leading to a further increase in selling prices. Average supplier lead times meanwhile lengthened to the greatest extent since mid-2022. Several manufacturers noted that they faced the difficult choice between accepting delays from re-routed shipping or facing the prospect of paying higher prices to source from closer to home. This comes at a time of already heightened cost caution at manufacturers in response to weak demand, as highlighted by further cuts to employment, purchasing and inventories in February.
"Although the supply impact and effect of prices is muted by standards seen at the height of the pandemic, any upward pressure on inflation will be a concern to policymakers and may add to calls that it is too early to be confident on the timing of interest rate cuts."
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