After a sharp slowdown for the UK economy at the start of the year, analysts hope growth has bounced back in recent months. But the latest news from manufacturers suggested the sector was being left behind in any turnaround despite the government’s ambitions to rebalance the economy towards more production and exports.
The closely watched Markit/CIPS UK manufacturing PMI report showed companies had scaled back hiring and remained largely dependent on domestic demand, largely driven by consumers, for what little growth there was last month.
“We still see a bounce in overall GDP growth in the second quarter, but there is little evidence of such an improvement in manufacturing. As usual, the UK is reliant on services for growth,” said Elizabeth Martins, economist at HSBC.
The headline activity reading on the Markit/CIPS UK manufacturing PMI modestly missed City expectations. It edged up to 52.0 from 51.8 in April, compared with a consensus forecast for 52.5 in a Reuters poll of economists.
Rob Dobson, senior economist at survey compiler Markit, said the strength of the pound was serving as a “double-whammy for economic growth” by constraining manufacturers’ export performance and also driving a surge in cheap imports.
“Expectations of a broad rebound in UK economic growth during the second quarter of the year are called into question by these readings. Manufacturing looks on course to act as a minor drag on the economy, as the sector is hit by a combination of the strong pound and weak business investment spending,” he said.
The pound had strengthened against other major currencies last month, boosted by a more decisive election outcome than investors had feared. But it weakened at the end of May on the back of growing market expectations the Bank of England will keep interest rates at their record low of 0.5% for the rest of this year.
Monday’s manufacturing report reaffirmed that view and pushed the pound down to $1.5198 against the dollar, marking a return to its pre-election level.Although the PMI index has been above the 50-mark separating growth from contraction for 26 months, it has softened recently, echoing other indicators suggesting tougher market conditions for manufacturers.
The manufacturing trade group, EEF, has cut its growth forecast for the sector. The PMI report, compiled after the 7 May election, showed factory output continued to rise but at a slower pace than the previous month as the consumer goods sub-sector performed well.
Manufacturers said new business grew on the back of domestic orders while there was a drop in new work from abroad. Hiring slowed to the softest pace for two years.
The eurozone version of the manufacturing PMI showed factories in the single currency bloc managed modest growth in May. The headline reading came in at 52.2, up from April’s 52.0. Spain and Italy performed well but France and Germany struggled.
theguardian.com
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