European country hardest hit by Houthi blockade named

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12% of UK manufacturers have been affected by shipping disruptions in the Red Sea, according to a survey by S&P Global

The UK economy has been hit hardest among its European peers by shipping disruptions in the Red Sea, an S&P Global PMI survey released this week shows.

According to the findings, 12% of UK manufacturers report that delivery times have been affected due to Houthi rebel attacks on ships traversing the waterway, which have forced shipping companies to reroute vessels around the southern tip of Africa. Slightly fewer companies have been impacted in Greece (9%), France, and Germany (both 8%).

“Analysis of the reasons cited by PMI panel member companies reveals that the Red Sea crisis had an especially marked impact on European companies in January… Out of the European countries monitored, UK producers were the worst impacted by the Red Sea crisis,” S&P analysts said.

UK businesses taking part in the survey noted that delivery times have been pushed back by an estimated 12 to 18 days, “disrupting production schedules and raising inflationary pressures.”

Re-routing vessels away from the Red Sea also led to higher delivery prices, which caused UK manufacturers’ input costs to rise in January for the first time since last April, the survey found. Supplier price increases were reported in chemicals, electronics, energy, food stuffs, metals, packaging, and timber. Output costs also surged by the most since September, as manufacturers were forced to pass on the increased costs to customers. New orders, meanwhile, have been falling due to weaker demand both domestically and from abroad, the survey noted.

The purchasing managers’ index (PMI) for UK manufacturing rose to 47.0 in January, but did not meet prior expectations and stayed below the threshold of 50, signaling a persistent deterioration in operating conditions.

The Houthis, an Islamist group that controls a large part of Yemen, have been attacking ships crossing the Red Sea since mid-October, in what they claim is a show of solidarity with the Palestinians in their conflict with Israel. The Red Sea route normally accounts for around 15% of global sea trade, and is a vital waterway for trade between Asia and Europe. Cargo traffic in the area has dramatically fallen over the past three months as a result of the attacks. According to a report by the Financial Times citing the IMF’s PortWatch, in the seven days to January 28, trade volumes in the Bab el-Mandeb Strait were down 65% compared with the end of October.

According to the S&P survey, shipping in the Red Sea will likely continue to suffer at least into the second quarter of 2024.

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