Manufacturing in UK in July hits 3-year low

The Bank of England will have to be careful to balance any hit to growth with rising price pressures, which were already evident in the PMI manufacturing survey. Average purchase prices rose at their fastest pace in five years last month.
The Bank of England will have to be careful to balance any hit to growth with rising price pressures, which were already evident in the PMI manufacturing survey. Average purchase prices rose at their fastest pace in five years last month.PHOTO: REUTERS

PMI drops to 48.2, output and new orders fall below 50 with rising possibility of stimulus measures to come

LONDON • British manufacturing shrank at its fastest pace in more than three years in July, a survey showed yesterday, adding to signs that the country's vote to leave the European Union is hurting growth.

The data could give the Bank of England more impetus to cut interest rates on Thursday, after it surprised markets by holding fire last month but said most of its policymakers were leaning towards stimulus this month.

The Markit/CIPS UK manufacturing purchasing managers' index (PMI) fell to 48.2 in July from 52.4 in June, its lowest since February 2013 and below an initial "flash" reading reported in late July of 49.1.

Measures of output and new orders fell below the 50 mark that denotes growth for the first time since early 2013 due to weaker market conditions at home and uncertainty related to the EU referendum.

The output index fell to 47.8 in July from 53.6 in June, its lowest since October 2012, while new orders - which grew robustly in June - suffered their sharpest turnaround since 1998 and fell at their fastest rate in over three years.

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The weakening order book trend and upswing in cost inflation point to further near-term pain for manufacturers... On that score, the weak numbers provide powerful arguments for swift policy action to avert the downturn becoming more embedded.

SENIOR ECONOMIST ROB DOBSON, at Markit, which compiles the survey.

"The weakening order book trend and upswing in cost inflation point to further near-term pain for manufacturers,"said Mr Rob Dobson, senior economist at Markit, which compiles the survey. "On that score, the weak numbers provide powerful arguments for swift policy action to avert the downturn becoming more embedded."

Economists were divided on whether Bank of England would restart its bond-buying programme. The BOE will have to be careful to balance any hit to growth with rising price pressures, which were already evident in the PMI manufacturing survey.

Average purchase prices rose at their fastest pace in five years, with companies citing higher commodity prices and higher import prices, the latter resulting from the weaker currency. Sterling fell to a 31-year low against the US dollar after the Brexit vote but has recovered some of that ground since.

Output price inflation was also the highest in nearly two years.

But the boost to exports from a weaker pound was less marked than previously estimated, Mr Dobson said. A measure of new export orders slowed in July after hitting a seven-month high in June.

The PMI numbers were broadly in keeping with official data suggesting industrial production slowed towards the end of the second quarter after a strong April.

Data covering the post-Brexit period has been scarce so far. But there are signs consumer confidence is struggling, while Markit said its earlier one-off "flash" PMI surveys were consistent with the economy shrinking by a quarterly 0.4 per cent if they persisted.

British finance minister Philip Hammond downplayed the flash PMI numbers, saying they were a measure of sentiment and not of "hard activity".

REUTERS

A version of this article appeared in the print edition of The Straits Times on August 02, 2016, with the headline 'Manufacturing in UK in July hits 3-year low'. Print Edition | Subscribe