UK manufacturing growth slowed in June due to ongoing shipping delays and rising costs. The sector faced a slight dip in output but remained above the expansion threshold.
Despite the challenges, the domestic market continued to show strength, helping to support overall performance.
Slowdown in Growth
In June, the UK manufacturing sector experienced a slowdown in growth. The S&P Global/CIPS UK purchasing managers’ index (PMI) recorded a slight dip, measuring 50.9. This was a decrease from May’s 51.2, indicating that growth is still occurring but at a slower pace.
According to the PMI survey, the reduced growth rate was due to ongoing issues such as shipping delays and increased costs. The situation has impacted the manufacturing output, leading to concerns about future performance.
Domestic vs Export Orders
Despite the overall slowdown, the domestic market showed strength. Companies reported an increase in new domestic orders, which has been the backbone of manufacturing performance recently.
However, export orders have not fared as well. The UK has seen a decline in new export orders for the 29th consecutive month. Key markets such as the United States, China, and mainland Europe have shown a decrease in demand.
Factors Behind Export Decline
Several factors have contributed to the decline in export orders. Shipping delays have been a significant issue, with attacks on container vessels in the Red Sea by Houthi rebels exacerbating the situation.
Additionally, rising freight costs have made exporting goods more expensive, further impacting the ability of manufacturers to secure new business internationally.
Companies have also faced increased costs for inputs like energy, food, metals, packaging, paper, plastics, and timber. These rising costs have put additional pressure on the sector.
Expert Opinions
Rob Dobson, director at S&P Global Market Intelligence, expressed mixed feelings about the situation. He stated, “The UK manufacturing sector is experiencing its strongest growth in over two years. June’s output and new order growth were robust, mirroring May’s highs.”
However, he also noted concerns about the future: “The weak export performance is concerning, with manufacturers struggling to secure new business in key markets.” This sentiment is echoed by other industry experts.
Peter Arnold, chief economist at EY UK, highlighted that global shipping bottlenecks have significantly pushed up transport costs. This has led to the highest input price inflation since January 2023.
Inflation Concerns
The rise in transport and input costs has raised concerns about inflation. Shipping disruptions have contributed to these inflation worries throughout 2024. However, core goods inflation has remained lower than initially expected.
Peter Arnold mentioned that the lower-than-expected core goods inflation might allow the Bank of England to consider cutting interest rates. This would provide some relief to manufacturers dealing with rising costs.
Sector Resilience
Despite these challenges, the UK manufacturing sector has shown resilience. Rob Wood, chief UK economist at Pantheon Macroeconomics, pointed out that the sector is overall recovering well.
Even with downward revisions to output, the figures indicate a solid recovery. The domestic market remains a strong point, providing a glimmer of hope amidst the difficulties faced in exports.
Looking Ahead
The future of the UK manufacturing sector is uncertain. While the domestic market continues to drive growth, the ongoing issues with exports pose a significant challenge.
Manufacturers will need to navigate the complex landscape of rising costs and shipping delays to maintain their performance. The sector’s resilience will be crucial in overcoming these obstacles.
The UK manufacturing sector is facing a challenging landscape with slowed growth due to shipping delays and rising costs.
However, the resilience of the domestic market offers hope for continued recovery and stability. The sector must navigate these obstacles to maintain performance.