UK Manufacturing has taken a sharp turn for the worse in the last month, according to the latest PMI from Markit Economics.
At 45.9 in May, down from 50.2 in April, the index fell to its lowest level for three years. The drop, of over four points, was the second-steepest fall in its 20-year history. Even worse, the decline may have been sharper had it not been for a "marked reduction" in backlogs of work, as companies redirected capacity to fulfiling back-orders. If these backlogs are cleared and new orders don't come in, then output could fall further.
Commenting on the figures, Rob Dobson, senior economist at Markit, said:
Perhaps of greatest concern is that this month’s drop is not simply linked to the ongoing crisis of the Eurozone, but to increasing weakness of the UK domestic market, with overall order books collapsing at a faster rate than export orders. Manufacturers are also struggling to replace orders from Europe with demand from elsewhere, with reports of slower new work inflows from the US and Asia.
The figures are also bad news for those who doubt the ONS's official figures putting the UK back into recession (dubbed "recession deniers" by our economics editor David Blanchflower). Although the second estimate of growth for last quarter revised the figure downwards, from -0.2 to -0.3 points, the accuracy of the statistic is still being questioned.
The British Chambers of Commerce (BCC), for instance, reiterated today that it:
... questions the ONS’ assessment, as most business surveys indicated positive Q1 growth and employment increased in the quarter.
With the release of this new survey, the BCC may have to soften its stance - and in fact it already seems to be, since it has revised downwards its growth prediction for 2012, from 0.6 per cent to just 0.1 per cent. It has, however, slightly revised upwards its growth forecast for 2013, from 1.8 to 1.9 per cent.