In several cases manufacturers mentioned that these disruptions were driving up costs as they attempted to locate alternative suppliers from more expensive markets closer to home. Demand also remained weak, with new order intakes falling at the fastest rate since last October.
The PMI posted 47.5 in March, up from 47.0 in February and above the earlier flash estimate of 47.1. Although the PMI has signalled contractions in each of the past 19 months, the latest reading was the best since April 2023.
The contractions registered for four out of the five PMI subcomponents (new orders, output, employment and stocks of purchases) were all consistent with a deterioration in overall operating conditions during February.
The only sub-index to have a positive effect on the PMI level was suppliers' delivery times, which lengthened to the greatest extent since July 2022. That said, as the increase in lead times was driven by supply disruptions as opposed to rising input demand, the trend in that index is more a symptom of the challenging situation than a positive in itself.
Manufacturing production fell for the twelfth consecutive month in February, with contractions registered in the consumer and intermediate goods sub-industries. That said, the overall rate of decline eased to a three-month low.
Companies reported weaker demand from both domestic and overseas clients, lower sales volumes, market negativity and disruption to production schedules due to the Red Sea crisis.
The total volume of new business placed with manufacturers decreased for the eleventh month in a row during February. There were reports of client destocking, subdued market confidence and financial pressures all leading to lower new work intakes from both UK and overseas based customers.
New export business fell for the twenty-fifth consecutive month and at the quickest pace since October 2023. Export demand was also impacted by disruptions, delays and higher costs associated with re-routing shipping away from the Red Sea and Suez Canal.
Weak demand contributed to the depletion of work-in-hand (but not yet completed) at UK factories. Manufacturers reported that work on existing contracts had been used as a substitute for new orders to support production volumes.
Efforts were also ongoing to trim excess capacity, with staffing levels reduced for the seventeenth successive month. Lower employment reflected restructuring, redundancies and cost management programmes.
Average vendor lead times lengthened to the greatest extent in over one-and-a-half years (since July 2022). By far the biggest impact on supplier performance was the effects of the Red Sea crisis. This also contributed to a further increase in average purchase prices, which rose for the second month in a row.
There were also reports of supplier price rises and higher transportation costs. Part of the increase in costs was passed on to clients, as average output charges rose for the fourth month running.
Cost considerations and stock normalisation programmes led to leaner inventories of both finished products and inputs and also lower levels of purchasing activity during February. All three variables were lowered across each of the sub-sectors (consumer, intermediate and investment goods) covered by the survey.
Huw Howells, managing director of manufacturing and industrials at Lloyds Bank, said: “With another rise in February, manufacturers impacted by tensions along international shipping routes, as well as rising costs and supplier disruption, are having to adapt – such as by focusing on reshoring and exploring new supply chains.
“Across the sector, segments are facing different challenges and opportunities, and some are more impacted than others. For example, the original equipment manufacturer space appears in good health, with a series of strong 2023 results signalling good momentum for the year ahead.
“Overall, while headwinds remain, there is plenty to be positive about for the coming months.”
