U.K. Factory Slump Deepens as PMI Drops to Lowest Since 2013

(Bloomberg) -- A downturn in U.K. manufacturing worsened in June as a gauge for the industry dropped to the lowest level since February 2013.

IHS Markit's Purchasing Managers Index for the sector showed a back-to-back contraction for the first time in more than six years. Production and new business returned the worst readings for almost seven years, with companies citing Brexit uncertainty and soft global growth as reasons behind the slowdown.

The figures underscore the U.K. economy's hangover from high levels of stockpiling in the first quarter, when companies rushed to build up inventories to smooth any disruption around the nation's original March 29 Brexit date.

With Brexit now delayed, the question for policy makers is whether firms will start running down these stocks, or maintain them until the new October deadline.

“There will need to be a substantial improvement in economic conditions at home and overseas, alongside reductions in both Brexit and domestic political uncertainties, if manufacturing is to see a sustained revival in the coming quarters,” said Rob Dobson, director at IHS Markit.

In a separate report, the Bank of England said Monday that the annual growth of consumer credit increase the least in more than five years in May. Demand for mortgages also eased.

Key Insights

• Markit's index fell to 48 last month, the firm said in a report Monday. Economists were expecting the reading to be similar to May's 49.4
• Domestic and overseas demand weakened, with companies particularly citing reduced intakes of work from the U.S., mainland Europe and Australia
• The immediate goods sector was the worst hit, while business optimism recorded the third-worst level in the history of the series
• Employment fell for a third month and inventories fell for a second month, reflecting the depleting of Brexit stockpiles

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• The Office for National Statistics said Friday that stockpiling added 0.9 percentage point to growth in the first quarter, when the economy expanded 0.5%
• Bloomberg Economics estimates GDP contracted in the three months through June for the first time since 2012
• Markit is due to publish similar indexes for the U.K.'s construction and dominant services sector later this week

--With assistance from Mark Evans and Harumi Ichikura.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

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

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