- Markit factory index plunges to 49.2, below key 50 level
- Producers cut about 20,000 jobs in the past quarter: Markit
U.K. manufacturing unexpectedly shrank for the first time in three years in April, dealing a shock blow to the economy after growth slowed in the first quarter.
Markit Economics said its factory Purchasing Managers Index dropped to 49.2 from 50.7 in March, below the key 50 level that divides expansion from contraction. Economists had forecast an increase to 51.2 from an initially reported 51, according to a Bloomberg survey.
Markit also said manufacturing output is falling at a quarterly pace of about 1 percent and it estimates that about 20,000 jobs were lost in the industry over the past three months. The report will heighten concerns about the impact of the European Union referendum on confidence and the wider economy. The Bank of England has said uncertainty surrounding the June 23 vote is already having an effect, including a reduction in hiring intentions and the depreciation of the pound, and there have been dire warnings about the potential fallout if the U.K. quits the bloc.
The contraction “confirms that the weaker pound is not offsetting the hit to demand resulting from uncertainty fostered by the EU referendum,” said Samuel Tombs, an economist at Pantheon Macroeconomics in London. “The manufacturing sector is likely to only crawl out of recession later this year.”
The pound pared its advance against the dollar after the report was released and was at $1.4691 as of 11 a.m. London time, up 0.1 percent on the day.
Markit said exports orders dropped for a fourth month, with companies citing weaker global market conditions. Total orders barely grew. Both costs and output prices fell in April, though the pace of the decline eased.
U.K. economic growth slowed to 0.4 percent in the first quarter, according to data last week. Services posted the weakest performance for almost a year, industrial production declined and manufacturing shrank for a fourth time in five quarters.
There is “rising uncertainty about the global economy, the oil and gas industry, retail sector and the EU referendum,” said Rob Dobson, senior economist at Markit. “With this backdrop unlikely to change in the coming months, the second quarter is likely to remain a bleak landscape for industry.”