UK manufacturing growth edges up, still dragging on economy - survey

Manufacturers in the UK are struggling due to low demand from Europe and a strengthening pound.
Manufacturers in the UK are struggling due to low demand from Europe and a strengthening pound.PHOTO: BLOOMBERG

LONDON (REUTERS) - British manufacturing growth picked up in July but new orders grew at the slowest pace in nearly a year, a survey showed on Monday, suggesting the factory sector would continue to drag on overall economic growth.

The Markit/CIPS manufacturing purchasing managers' index (PMI) rose more than forecast in July to 51.9. That was up from 51.4 in June - its lowest level in over two years - but well below an average of 54.3 recorded since April 2013, when Britain's economy was starting its recovery.

The pace of growth of new orders slowed to 52.2, its lowest since September 2014, underscoring the challenge for policymakers to achieve more balanced long-term economic growth.

"Although a tick higher in the headline PMI breaks the decelerating trend in UK manufacturing, growth in the sector remains near-stagnant and suggests that the sector is continuing to act as a drag on the economy," said Rob Dobson, economist at data company Markit.

Britain's economy looks set for another strong year but the recovery remains largely reliant on consumer spending, with manufacturers struggling due to weak demand from Europe and a strengthening pound.

New export orders contracted for the fourth consecutive month in July, as the strength of the British currency hurt demand from euro zone markets, Markit said.

Sterling has risen 10 per cent against the euro this year, blurring the outlook for the Bank of England as it edges closer to its first rate hike in more than eight years. The BoE is expected to keep rates on hold at a meeting this week but many economists expect some of its policymakers to vote for a hike.

Official data released in July showed manufacturing contracted in the second quarter.

Monday's survey showed prices paid by manufacturers for raw materials fell in July after rising in June for the first time since August 2014, but factory gate prices rose to their highest in nearly a year.

The BoE expects inflation to pick up quickly towards the end of 2015 as last year's plunge in global oil prices filters through the numbers. Official data showed British inflation slipped back to zero in June.

- Detailed PMI data are only available under licence from Markit and customers need to apply to Markit for a licence.