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Economic News

Red Sea disruption hits UK manufacturing - PMI

By Abigail Townsend

Date: Thursday 01 Feb 2024

LONDON (ShareCast) - (Sharecast News) - The UK's hard-pressed manufacturing sector faltered in January, a closely-watched survey showed on Thursday, as disruption in the Red Sea started to bite.
The latest S&P Global UK manufacturing purchasing managers' index was 47.0, a modest improvement on December's 46.2. It remained, however, in negative territory and was below the flash estimate of 47.3.

Analysts had also been expecting 47.3.

A reading below the neutral 50.0 level indicates contraction, while one above it suggests growth. The UK manufacturing PMI has now been in negative territory for 18 months.

Respondents pointed to further declines in output and new orders, which in turn led to a rise in job losses and reduced purchasing.

Supply chain difficulties also increased, as ongoing tensions in the Red Sea caused ships to take lengthy detours around the Cape of Good Hope.

Rob Dobson, director at S&P Global Market Intelligence, said: "The downturn in UK manufacturing continued at the start of 2024, with output, new orders and employment all reduced in January.

"The contraction was widespread, with declines in all three variables seen across the consumer, intermediate and investment goods sub-industries.

"Cost and stock management initiatives are being complicated by the Red Sea crisis. Diverting purchased inputs, especially those sourced from the Asia Pacific region, around [Africa] is raising prices and extending supplier lead times.

"Some of our panel members estimate that a minimum of 12-to-18 days could be added to some expected deliveries, disrupting production schedules and raising inflationary pressures at a time when manufacturers are already struggling with weak demand both at home and overseas."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The downturn in manufacturing output is showing no signs of abating, as demand continues to soften and supply chain disruptions re-emerge.

"Production does not appear to have been impeded much yet, but the decline in the stocks of purchase balance to its joint lowest level since November 2012 suggests that disruption will intensify if the Red Sea crisis is not resolved soon."

A panel of around 650 manufacturers was surveyed between 11 and 26 January.

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