Activity in Britain’s beleaguered manufacturing sector slumped to its lowest ebb in three years in May, fuelling fears of a protracted recession.
The Markit/CIPS manufacturing PMI index tumbled to 45.9 last month, from 50.2 in April. This was the lowest level since May 2009 and the second sharpest fall in the index’s twenty-year history.
Companies scaled back production and employment as new business declined at the steepest pace since March 2009, amid rising uncertainty among domestic and overseas clients.
“Perhaps of greatest concern is that this month’s drop is not simply linked to the ongoing crisis in the eurozone, but to increasing weakness of the UK domestic market, with overall order books collapsing at a faster rate than export orders,” said Rob Dobson, senior economist at Markit.
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.”
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The gloomy figures prompted speculation from economists that the Bank of England’s Monetary Policy Committee could unleash another round of Quantitative Easing as early as next week as growth fails to materialise.
Michael Saunders, UK economist at Citi, said: “Growth has repeatedly undershot the MPC’s forecasts in recent years and in our view it looks like their latest forecast will have to be revised as well. Further easing is likely, and we believe the next instalment of QE could come next week.”
The situation was even worse in the embattled eurozone as manufacturing activity slipped to 45.1 in May from 45.9 in April, the lowest reading since mid-2009.
Ireland was the only nation to signal an expansion of even modest note in May, as the Austrian PMI slipped closer to stagnation and all the other nations covered by the survey saw contractions, defined as any reading below 50.
PMIs for Germany, France and Spain all fell to their lowest levels since mid-2009, while the downturn in the Netherlands accelerated to its fastest in five months. Rates of contraction eased slightly in Italy and Greece, but remained steeper than the euro area average. Greece moved off the bottom of the euro PMI league table for the first time since January 2010, replaced by Spain.