Manufacturing activity in the UK plummeted at the fastest rate since the height of the 2008-09 global financial crisis last month, as stringent budget cuts continued to crimp the British economy even as euro area debt crisis deepened.
Data from Markit showed that headline Purchasing Managers’ Index (PMI) in the UK fell to 45.9 in May compared to a revised down reading of 50.2 in April.
Economists had forecast a reading of 49.9.
A reading of less than 50 indicates activity shrank.
It was the fastest rate of decline in three years. This was the second-fastest rate of contraction in the UK's manufacturing activity since the PMI figures were first issued 20 years ago.
Markit described the May PMI figure as a sudden sharp turn for the worse. The decline came as companies scaled back production and employment as inflows of new business declined at the steepest pace since March 2009, it said.
Rob Dobson, senior economist at Markit and author of the PMI report, said that the fall was not simply linked to the eurozone’s debt crisis, but also to the increasing weakness of the UK domestic market.
“Manufacturers are also struggling to replace orders from Europe with demand from elsewhere, with reports of slower new work inflows from the US and Asia,” he said.
“Companies are subsequently becoming much more cost cautious, with manufacturers cutting employment for the first time in five months and reducing stock levels in anticipation of ongoing weak demand in coming months," Dobson said.
He added that, barring a sharp turnaround in June, manufacturing output in the UK could fall by as much as 1% in the second quarter. The sector could become a major drag on the UK economy and extend the recession into the middle of the year.