Red Sea disruption hits UK manufacturing at start of 2024

© Reuters. People walk over London Bridge looking at a view of Tower Bridge in the City of London financial district in London, Britain, October 25, 2023. REUTERS/ Susannah Ireland/File Photo

By David Milliken

LONDON (Reuters) – British manufacturing started 2024 on a weak footing, recording an 18th consecutive month of contraction as orders fell and disruption to Red Sea shipping delayed deliveries, a survey showed on Thursday.

The S&P Global Purchasing Managers’ Index (PMI) for manufacturing rose to 47.0 in January from 46.2 the month before, a two-month high but below an earlier preliminary estimate of 47.3 which had been the highest since April 2023. Readings below 50 represent a fall in activity.

Manufacturing has been persistently weaker than Britain’s service sector, which recorded moderate growth in January according to preliminary PMI data.

“Companies linked lower output to weaker new work inflows, efforts to reduce inventory holdings and disruption caused by supply chain delays,” S&P Global said.

Businesses reported that delays to deliveries increased at the fastest pace since November 2022, as ships rerouted around the Cape of Good Hope rather than travel via the Red Sea, where they are at risk of attacks from Iran-backed Houthis.

Deliveries from east Asia were taking at least 12-18 days longer as a result, manufacturers said.

So far economists have forecast relatively little economic impact in Britain from the conflict. The Bank of England, which is monitoring the situation, is due to publish new quarterly inflation forecasts at 1200 GMT along with its latest interest rate decision.

Many economists expect British consumer price inflation – which was 4% in December – to be below the BoE’s 2% target by April or May.

However, Thursday’s survey showed manufacturers’ input costs rose at the fastest pace since March 2023, after the biggest month-on-month jump in the index since September 2022. Output prices rose by the most since September, as manufacturers began to pass on the increased costs to customers.

New orders fell due to weaker demand domestically and from customers in the United States, China, the European Union, Canada and the Middle East.

“There were … reports of low customer confidence, order cancellations and client destocking all negatively impacting new work inflows,” S&P Global said.