U.K. Manufacturing Slips Into Contraction After Brexit Delay

(Bloomberg) -- Britain’s manufacturing sector unexpectedly shrank in May for the first time since the direct aftermath of the 2016 Brexit referendum.

IHS Markit’s manufacturing PMI dropped to 49.4 from 53.1 in April as factories unwound Brexit preparations when the departure date was pushed back. The reading is below the 50-mark that separates expansion from contraction and weaker than the 52.2 expected by economists in a Bloomberg survey.

The reversal follows intensive stockpiling as factories built up inventories ahead of the previous Brexit deadline of the end of March. The new exit date is Oct. 31.

But as Prime Minister Theresa May prepares to step down, there’s a chance Brexit could be further delayed, or that the country crashes out of the European Union without new trading arrangements in place.

“The current manufacturing downturn may have further to run and will have negative ramifications for growth in the broader economy in the months ahead,” said Rob Dobson, director at IHS Markit.

Brexit uncertainty, global trade tensions and the “sharp slowdown in the autos sector” all put a brake on the sector, he said.

Key Insights

• Manufacturers said they had difficulties getting clients to commit to new contracts due to the already-high level of inventories
• Demand for new orders fell for both domestic and overseas orders, including Asia and Europe
• The level of new export business fell at the fastest rate in almost five years
• The survey showed that some clients based in the EU shifted supply chains away from Britain
• Weakness in the sector was mainly in the investment and intermediate goods industries
• Almost half of firms still expect output to be higher in 12 months

--With assistance from Mark Evans and Simbarashe Gumbo.

To contact the reporter on this story: Jill Ward in London at jward98@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint

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