Manufacturing slows despite spark in May
GLOBAL trade tensions and weaker growth look set to keep manufacturing in the slow lane this year despite factory output picking up last month.
Activity across a sector representing 10 per cent of UK output has cooled after an export-driven boom throughout 2017 on the back of a weaker pound.
It increased for the first time in six months in May as overseas orders helped offset weaker domestic demand.
But the rebound from April’s 17-month low was “unconvincing”, according to economists.
The IHS Markit/CIPS purchasing managers’ index edged up from 53.9 in April to 54.4 – above 50 indicates growth, but the fastest production growth so far this year was mainly achieved through a sharp reduction in backlogs of work.
Companies reported more new work from mainland Europe, North America, China, India, South America and Africa, but jobs were created at the slowest pace for 15 months, costs rose and optimism sank to a six-month low.
IHS Markit director Rob Dobson said: “The mild acceleration in output appears positive given the slowdown in manufacturing since the turn of the year.
“However, scratch beneath the surface and the rebound is far from convincing. Manufacturers have yet to fully adjust their production to the weakening trend in new business growth and there will need to be improvement in demand if output volumes are to be sustained.
“Manufacturers will be constrained if the resurgence in cost inflation and supply chain pressure becomes embedded.”
Lee Hopley, chief economist at EEF, the manufacturers’ organisation, said: “Industry posted solid gains in May, alleviating fears that the expansion over the past year had ground to a halt. However, there has been some slippage in the pace of growth from last year’s lofty heights.
“Given a similar picture in European markets and the advent of escalating trade tensions it seems likely that UK manufacturing will stay on this slowing trajectory in the second half of the year.”