Red Sea shipping attacks trigger downturn in British manufacturing

Drop in orders comes amid pressure on global shipping due to Houthi violence

A cargo ship near the Red Sea port of Eilat, southern Israel. EPA
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Britain's manufacturing industry suffered a downturn last month as the crisis in the Red Sea affected global shipping routes.

The influential S&P Global/CIPS UK manufacturing PMI survey dropped to 49.1 in April, having hit a 20-month high of 50.3 the previous month.

Any reading above 50 means a sector is in growth, while a score below this means it is contracting.

Global shipping costs have risen dramatically in recent months as Yemen's Houthis continued their attacks on vessels in response to the Israel-Gaza crisis, rerouting cargo to longer and more expensive journeys round the southern tip of Africa.

Output, new orders and employment all fell, while input cost pressures increased at their fastest rate since February 2023, the survey found.

The drop reflected a range of rising energy and material costs, as well as increased wage bills at suppliers.

Other business surveys highlighted increased cost pressures last month, possibly reflecting a rise in Britain's minimum wage.

Selling prices rose at their fastest rate since May 2023, a point likely to be noted by the Bank of England ahead of its interest rate meeting next week.

The performance of manufacturing, which accounts for about 10 per cent of British economic output, contrasts with the much larger services sector, in which growth accelerated last month.

Joint strikes by US and UK forces this year have done little to deter the Houthis, who have launched more than 50 attacks on shipping, seized one vessel and sunk another since November, the US Maritime Administration says.

Shipping through the Red Sea and Gulf of Aden has declined due to the threat, sending container costs soaring to levels not seen since the pandemic.

"[Manufacturing] is still besieged by weak market confidence, client destocking and disruption caused by the ongoing Red Sea crisis, all of which are contributing to reduced inflows of new work from domestic and overseas customers," said Rob Dobson, director at S&P Global Market Intelligence.

"The news on the prices front is also worrisome for those looking for a sustainable path back to target [consumer price] inflation, with cost pressures growing in industry and feeding through to higher selling prices at the factory gate."

The volume of new business placed with UK manufacturers declined over the month, with UK companies reporting signs of weaker domestic and overseas demand.

New export business declined for the 27th consecutive month, amid reports of weaker intake from Germany, Ireland, Asia and the US.

Meanwhile, average purchasing costs rose for the fourth successive month, with the rate of increase accelerating to its highest since February 2023.

Caroline Litchfield, partner and head of manufacturing and supply chain sector at Brabners, said: "Hopes of a recovery in the UK's manufacturing sector will need to be put on ice for now, as March's lift in activity proved an anomaly.

"Indeed, supply-side barriers including delays to raw material deliveries and high input cost rumble on.

"And while domestic demand has picked up, geopolitical instability has fractured supply chains globally – most notably with disruptions in the Red Sea causing congestion at Mediterranean ports – to restrict international orders."

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Updated: May 01, 2024, 1:34 PM