Press release

1 Jun 2020 London, GB

Purchasing managers report: reduced manufacturing contraction in May but sector still struggling – EY ITEM Club comments

The purchasing managers reported a reduced contraction in manufacturing activity in May. The manufacturing PMI rose to 40.7 in May (revised up marginally from the “flash” reading of 40.6) after falling to a record low of 32.6 in April from 47.8 in March.

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  • The purchasing managers reported a reduced contraction in manufacturing activity in May. The manufacturing PMI rose to 40.7 in May (revised up marginally from the “flash” reading of 40.6) after falling to a record low of 32.6 in April from 47.8 in March
  • Output continued to contract in May, but there was at least a clear slowdown in the rate of decline from April
  • Other elements of the survey rose from their April lows in May while still indicating contraction. This included new orders. There was also a continued decline in backlogs of work. Confidence edged up for a second month running from a record low in March to be at a three-month high, but it was still lower than past norms
  • Weakness was reported across the consumer, investment and intermediate goods sectors. Pockets of growth mainly related to healthcare and PPE, while there were also some inflows of business due to companies re-starting their businesses
  • The second fastest fall in manufacturing jobs reported by the purchasing managers in May puts in context the Government’s extension of the Coronavirus Job Retention Scheme through to October
  • The May manufacturing purchasing managers’ survey lends support to belief that UK economic activity could improve as lockdown restrictions are progressively eased over the coming weeks. Nevertheless, the UK seems on course for a record GDP contraction in the second quarter – the EY ITEM Club expects GDP contraction of around 15% quarter-on-quarter over the second quarter
  • While the EY ITEM Club expects the economy to return to clear growth from the third quarter, we still see the economy contracting around 8% over 2020. This assumes that there is a gradual further lifting of the lockdown over the coming weeks following the latest moves that came into effect on 1 June

Howard Archer, chief economic advisor to the EY ITEM Club, comments:

The purchasing managers survey showed manufacturing activity contracted at a reduced but still substantial rate in May. This followed record contraction in April when the sector felt the full impact of the lockdown. While the manufacturing sector has been affected less than the services sector, the impact on activity has still been substantial.

Specifically, the PMI rose to 40.7 in May (revised up marginally from the “flash” reading of 40.6) after falling to a record low of 32.6 in April from 48.0 in March and 51.7 in February (which had indicated the first expansion since April 2019).

May’s reading of 40.6 kept the PMI below the 50.0 level which indicates unchanged activity.

Output contracted at reduced pace in May; new orders, employment and confidence all off April lows

Output contracted despite the sub-index rising appreciably from April’s record low.

Similarly, new orders contracted in May, but the rate of decline did at least moderate from the sharpest drop in the survey’s history seen in April. This applied to export orders as well.

Weakness was reported across the consumer, investment and intermediate sectors. However, there were some pockets of growth, primarily related to healthcare or PPE. Companies restarting business was also reported to have led to some inflows of business.

Backlogs of work fell but came off April’s lowest rate since February 2009.

Employment fell again – the second fastest fall on record after April.

Output prices rose modestly and input prices edged up.

Confidence rose modestly for a second month running from the record low seen in March to be at a three-month high, but was still below long-term norms.