Red Sea crisis impacts UK factories, sparks inflation concerns

LONDON

The Red Sea crisis is sending shockwaves through UK manufacturing supply chains, leading to a sharp contraction in factory production, according to recent data from S&P Global.

The flash UK Manufacturing Output Index, which serves as an indicator of factory production, has plummeted to a three-month low of 44.9 -- a clear sign of economic contraction as any reading below 50 indicates.

"Some 80% of firms reporting slower deliveries explicitly linked the delays to events in the Red Sea, where attacks by Houthi rebels have led increasing numbers of shipping companies to transport goods from Asia to Europe via the Cape of Good Hope rather than the Suez Canal," it said.

"This extended journey typically lengthens the delivery route by at least 10 days. Delays were most widely reported for textiles and vehicle manufacturing," it added.

S&P Global's survey of UK purchasing managers reveals that manufacturing supply chains are grappling with extended wait times for container freight, particularly amid the Red Sea crisis.

The crisis has prompted vessels to reroute from the Suez Canal, leading to longer international shipping times, with firms experiencing delays in receiving essential supplies, forcing them to significantly deplete their inventories.

The extended delivery times are also contributing to increased costs across the manufacturing sector.

S&P Global predicts that UK inflation is likely to remain "stubbornly higher" in the 3 - 4% range in the near future.

Tensions have escalated in the Red Sea amid Houthi attacks on Israel-bound ships.

The Houthis said the attacks aim to pressure Israel to halt its deadly onslaught on the Gaza Strip. That has prompted the US and Britain to launch retaliatory airstrikes against Houthi targets inside Yemen.

The Red Sea is one of the world's most frequently used sea routes for oil and fuel shipments.