Output eases but orders growth beats expectations
OUTPUT in Britain’s manufacturing industry eased back from a three-year high, but beat expectations in May thanks to robust growth in new orders.
The closely-watched Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) showed a reading of 56.7 last month, down from 57.3 in April and above economists’ expectations of 56.5.
A reading above 50 growth.
The report said manufacturing production and new orders grew above the average rate thanks to strong demand in the UK and a “solid increase” in exports.
Firms were also feeling positive about the year ahead, with business optimism climbing to a 20-month high and jobs growth expanding at its fastest rate since June 2014.
However, the industry was unable to maintain the surge of activity seen in April when it saw the strongest inflows of new work since January 2014.
Rob Dobson, senior economist at IHS Markit, said the figures suggest the manufacturing industry “gained growth momentum” in the second quarter after a sluggish start to 2017.
He said: “The ongoing strength of the domestic market remains the main driver of the upturn.
“Growth of new export business played a lesser role in comparison, with the trend in foreign demand continuing to improve only in fits and starts, despite the assistance of a historically weak sterling exchange rate.
“The survey also provided positive signs that the upturn may be sustained, as growth of new orders remained solid, backlogs of work rose at the quickest pace in six years and business optimism improved to a 20-month high.”
Sterling’s slump since the Brexit vote, which has made UK goods indicates cheaper for overseas buyers, helped new export orders climb for the 13th month in a row, according to the report.
However, the Brexit-hit pound kept input and output costs high, despite dropping back from highs seen in previous months.
The weakness of the UK currency means manufacturers have to pay more for imported raw materials, with many passing the larger costs to their customers.
Lee Hopley, chief economist at manufacturing organisation EEF, said resilient UK demand and a “better looking global economy” had kept the manufacturing industry in good shape.
She added: “The familiar story of cost pressures following commodity price rises and a weaker sterling still coming through the pipeline will continue to play a role in dampening the spirits of UK consumers.
“The growing demand for employees in the manufacturing sector should however provide additional support for ongoing positive labour trends, though will do little to help with the growing productivity challenge.”
The pound was up 0.1% against the US dollar at 1.288 and 0.2% ahead versus the euro at 1.147 following the PMI announcement.
The update comes after official figures last week showed the UK economy suffered an even deeper slowdown at the start of the year, as the services sector came under pressure and inflation dealt a blow to household spending.
The Office for National Statistics (ONS) said gross domestic product (GDP) grew by 0.2% in the first quarter of 2017, revising down the figure from its initial estimate of 0.3%.