The monthly health check from the Chartered Institute of Procurement and Supply/Markit found that buoyant consumer spending helped British industry edge up from a 26-month low in June.
But the survey of purchasing managers said business conditions were “relatively subdued” and below the average seen since the economy began to recover in early 2013.
Rob Dobson, senior economist at Markit, said: “Although an uptick in the headline PMI breaks the decelerating trend in UK manufacturing, growth remains near-stagnant and suggests that the sector is continuing to act as a drag on the economy.”
Manufacturing accounts for about 10% of UK economic output, and Dobson said a solid performance by the service sector would be needed to sustain growth in the third quarter of 2015.
“Scratching beneath the surface of the headline manufacturing numbers shows that the sector is still reliant on the domestic market to drive overall demand, and on the consumer sector in particular,” Dobson said.
“The continued weakness of investment goods demand suggests that ‘rebalancing’ remains firmly in the rhetoric as opposed to reality column.”
The UK purchasing managers’ index (PMI) rose from 51.4 points to 51.9 last month, a slightly better performance than the City had been expecting. Any reading above 50 suggests that the sector is expanding.
The rate of growth in new orders slowed to its lowest level in 10 months, with a two-tier manufacturing sector characterised by solid demand from UK consumers and fresh declines in overseas business.
CIPS/Markit said export order books shrank for the fourth month in succession, noting that the rising value of sterling was making UK goods more expensive in the eurozone, which accounts for almost half the British manufactured goods sold overseas.
The stronger pound helped cut manufacturers’ bills for fuel and raw materials, already under downward pressure because of falling commodity prices.
However, the survey found that average selling prices rose for the second time in three months, while inflation in the sector was at its highest level for almost a year.
Lee Hopley, chief economist at EEF, the manufacturers’ organisation, said the PMI survey was welcome, adding there was the prospect that official data for manufacturing due out later this week would show that production picked up in June. But she said poor prospects for exports and energy were holding the sector back.
Hopley said: “While the headline movement was positive, the story behind the index is a familiar one – decent domestic demand driven by consumers with strengthening purchasing power, contrasting with persistent challenges in getting exports moving and weak demand for investment goods in the oil and gas sector.
“This is good enough to keep employment prospects growing across manufacturing, but until something gives in export markets or oil and gas investments, the outlook for growth will remain modest.”
theguardian.com
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