UK manufacturing PMI registers unexpectedly sharp drop in May

Factory sector activity in the UK shrank for the first time in nearly three years in May, as companies began to unwind the stockpiles that they had built up ahead of the original Brexit date and amid increased trade tensions globally, according to the results of a closely-followed survey.

IHS Markit's manufacturing sector Purchasing Managers' Index dropped from a reading of 53.1 for April to 49.4 in May.

Economists had forecast a reading of 52.1.

New business volumes declined for the first time in seven months and at their fastest pace in six-and-a-half years, in turn dragging down output and employment, the survey compiler said.

Falling orders were seen from both domestic and foreign clients, amid reports of lower demand from Asia and Europe and mentions of Brexit uncertainty, including clients diverting supply chains away from Britain, which had led to a decline in demand from the European Union.

Nevertheless, manufacturers remained optimistic, with nearly 49% saying they expected production to be higher in 12 months' time.

By sectors, weakness was centred on the intermediate and investment goods industries.

At consumer goods producers on the other hand, production, new orders and hiring all continued to increase.

Linked to the above, output charges inflation reached a three-month high.

Commenting on the survey results, Rob Dobson, Director at IHS Markit, said: "Although the consumer goods sector remained a positive growth spot, the intermediate and investment goods industries are still comparatively weak, in part reflecting the reverberation of the recent sharp slowdown the autos sector. With these demand, purchasing and inventory trends likely to stay in play for the foreseeable future, the current manufacturing downturn may have further to run and will have negative ramifications for growth in the broader economy in the months ahead."