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Manufacturing close to stagnation rates

Manufacturing has hit a 34-month low, according to figures from the Purchasing Managers Index (PMI), which takes its data from more than 600 manufacturing companies.

The UK manufacturing PMI now stands at 50.8, which is only just above the stagnation mark and output has experienced a sharp decrease. The fall comes just a month after an increase of the January manufacturing PMI to 52.9, which was due to a surge in domestic orders.

The slump is attributed to a slowdown in the consumer and investment goods market, and capital and consumer goods are also in decline.

Commenting on the new figures, Rob Dobson, a Senior Economist at Markit, said:

“The near-stagnation of manufacturing highlights the ongoing fragility of the economic recovery at the start of the year and provides further cover for the Bank of England's increasingly dovish stance.

"The breadth of the slowdown is especially worrisome. The domestic market is showing signs of weakening while export business continued to fall."

“Price pressures also remained firmly on the downside, with the survey signalling input costs falling at a double-digit annual pace and average factory gate selling prices showing a further decline. A lot of this is driven by the ongoing weakness of global commodity prices. However, there are also signs that weaker growth is driving up competition between manufacturers to secure new business and among their suppliers too.”

Nevertheless, despite the decline in February’s results, the PMI still remains in positive figures and previous industry surveys show that manufacturers are positive about the future prospects.

Employment slump and Exports

Employment in the manufacturing sector also fell, with the figures for February showing a reduction for the second successive month, however, the fall was not significant

Exports were on the decline with manufacturers stating there is a slowdown in orders from key locations such as Russia, Brazil and mainland Europe, and there was low demand from the domestic market also.

Exchange rates, Brexit and the manufacturing sector

Many manufacturing firms have expressed concerns over the volatility of exchange rates and the impact these will continue to have on the sector. Moreover, with an EU referendum set for June, this will lead to more uncertainty over the future of exports.

The future of the UK export market will remain unclear while the outcome of the Brexit vote is unknown. In the meanwhile, analysts state that if the UK public does vote to exit the EU, this will have a significant impact on many UK manufacturing sectors, including the chemical, food and beverages industry.

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