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UK manufacturing sector in steepest drop since July 2016 on Brexit concerns

The U.K. manufacturing sector shrank in May as Brexit uncertainty weighed on new orders, production and employment, data from IHS Markit and the Chartered Institute of Procurement & Supply showed.

The headline purchasing managers' index declined to 49.4 in May from 53.1 in April, marking the steepest fall since July 2016. A reading above 50.0 indicates expansion.

The Econoday consensus estimate was 52.0 for May.

New orders from domestic and overseas sources weakened, and new export business declined for the second consecutive month, registering the fastest rate of decline in more than 4.5 years. This came on the back of declining demand from Asia and other parts of Europe as well as a diversion of supply chains from the U.K amid Brexit uncertainty.

Meanwhile, a rise in large companies' output was offset by contractions among small and medium-sized companies. Employment declined for the second consecutive month due in part to restructuring and enhanced efficiency.

The postponement of the U.K.'s withdrawal from the EU drove the slowing growth of finished goods stocks and a decline in preproduction inventories for the first time in 10 months.

Approximately 49% of respondents to the purchasing managers' index survey anticipate increased output in the next 12 months as uncertainty around Brexit eases along with greater use of new technologies, among other factors, IHS Markit noted.

Intensifying global economic and trade wars will continue to hold back U.K. production levels, according to Duncan Brock, Chartered Institute of Procurement & Supply's group director.