The UK’s manufacturing sector contracted again in January, while business optimism jumped to its highest level in four months, a closely watched survey has suggested.
Manufacturers saw increasing supply chain difficulties as the ongoing Red Sea crisis, involving Houthi rebel attacks on commercial shipping, triggered the re-routing of deliveries away from the Suez Canal.
S&P’s global UK manufacturing Purchasing Managers’ Index (PMI) came in at 47.0 in January, up from 46.2 in December but lower than the 47.3 “flash” estimate from the middle of last month.
The figure remains below 50.0, the threshold separating growth from contraction.
Four of the PMI’s five sub-components showed trends signalling overall contraction, with the index suggesting a deterioration in operating conditions for 18 straight months.
Total new orders kept falling last month on weaker demand both home and abroad, while new business was hit by weak customer confidence, order cancellations and client destocking.
New business placed with UK manufacturers fell for the ninth month in a row, with companies reporting that the country’s weak economic backdrop, as well as poor weather, was hitting demand.
The continued decline in output and new orders resulted in more job losses and lower levels of purchasing and stock holdings.
“The ongoing weakness is leading to an increasingly cost-cautious approach at manufacturers, compelling cutbacks in purchasing and stock holdings as companies aim to achieve efficiencies, protect cash flow and defend fragile margins,” said Rob Dobson, director at S&P Global Market Intelligence.
He added: “Cost and stock management initiatives are being complicated by the Red Sea crisis. Diverting purchased inputs, especially those sourced from the APAC region, around the Cape of Good Hope is raising prices and extending supplier lead times.”
Business optimism rose to a four-month high, which S&P said reflected new product launches and expectations of economic rebound.
“One small ray of light from the January data is manufacturers expect some of these issues may be temporary, with an increasing number (over 50 per cent) still forecasting output to be higher 12 months out,” Dobson said.