Manufacturing confidence hits six-year low

Manufacturing optimism in the UK has plummeted to its lowest level since January 2013, the month when David Cameron committed to call an in-out referendum on Britain’s EU membership.

BDO’s Manufacturing Optimism Index, which shows how businesses expect their order books to develop in the next three to six months, fell to 98.26 in May from 101.09 in April.

In further gloomy news for the industry, the report shows that output growth is at its lowest point since February 2017 and close to contraction. BDO’s Manufacturing Output Index, which measures output growth in the sector, registered a decline of 1.36 points to 95.91 – just 0.91 points off negative territory. This exposes the extent to which stockpiling activity artificially inflated growth in previous months.

By contrast, optimism in the services sector surged by 4.28 points to 99.34 in May. This marks the largest monthly increase since May 2009, when companies started to regain confidence after the global financial crisis. The rise suggests that the extension of Article 50 has reassured some businesses that a cliff-edge Brexit may be avoided.

While the headline figures for the UK labour market remain strong, BDO’s Employment Index, which tracks firms hiring intentions, slipped to its lowest level since June 2018. Reflecting a fall in the number of job vacancies as well as wage growth easing, the Index registered a 1.01 point decline between April and May, bringing it to 113.05.

Peter Hemington, partner at BDO, said: “This month’s data is mixed, with sentiment in the services sector making a strong rebound after the granting of the UK’s Brexit extension until October. However, the manufacturing industry is set to be particularly badly affected over the next few months as it becomes clear that Brexit contingency planning artificially inflated growth at the start of 2019.

“This malaise will be exacerbated by increasing concerns that a no deal scenario has been thrown back into play, an outcome which UK businesses are warning could have calamitous consequences.”