Britain’s manufacturing sector failed to grow last month for the first time in almost three years but there was no let-up in inflationary pressures as firms raised prices at the fastest rate on record.
In the West Midlands, analysts said times were tough and manufacturers were struggling to retain both domestic orders and exports, while battling against the rising cost of raw materials, energy, components and freight charges.
New data released yesterday by the Chartered Institute of Purchasing and Supply (CIPS) showed that the NTC Economics’ purchasing managers index fell to 50 in May from 50.8 in the previous month. A figure above 50 signals growth.
The figure was below the consensus forecast of 50.5 and was the weakest since July 2005.
NTC economist Rob Dobson said a mix of weaker demand and intense cost inflationary pressure in May had ended a sustained period of expansion for the sector.
The picture reflects a report from the Engineering Employers Federation – West Midlands, which states that manufacturers in the region are struggling to keep their heads above water.
Ronnie Bowker, Ernst & Young’s senior partner in Birmingham, said manufacturing was a vital component of the region’s economy, accounting for 18.5 per cent of Gross Value Added, and so it was a real concern that the industry appeared to have reached a point of stagnation.
“The latest figures from CIPS were worse than many expected and have painted a gloomy picture of rising input and output prices combined with declining demand from the domestic market,” he said.
“Export orders appear to be holding up. As domestic demand cools in the UK, the region’s manufacturers must continue to forge links with the emerging economies which appear to be driving ahead.
“As oil prices continue to soar, trading conditions for manufacturers show little signs of easing over the coming months,” he added.
With this in mind, he said many firms were likely to face serious challenges in the months ahead and would have to reduce their dependency on the domestic market if they were to achieve growth in the short to medium term.
David Wright, chief executive of the Manufacturing Advisory Service-West Midlands, said that whether people chose to believe the CIPS report or not, the underlying message was that the manufacturing industry was struggling.
“Whilst some firms have been able to pass on at least some of their cost increases to customers by raising prices, this is by no means the norm,” he said. “The massive increases in the prices of steel and other raw materials, as well as escalating energy costs, mean that already tight margins are being squeezed even further; for those companies locked into price reducing contracts, there is precious little in which to find solace,’’ he said.
Evidence that companies are continuing to pass surging raw material costs on to customers will concern Bank of England policymakers as they try to cushion the economy from the effects of the credit squeeze.
However, it is thought unlikely that the Bank’s Monetary policy Committee will announce any cut in interest rates when they meet on Thursday.