The UK’s manufacturing PMI may have disappointed expectations by unexpectedly sliding to a one-year low, but economists are largely taking a cautiously positive view of the figures, reports FTAdviser sister title FastFT.
James Knightley at ING said that rising speculation over Bank of England rate rises, coupled with the Ukrainian mess, could be triggering some nerves among manufacturers, but stressed that the overall picture was pretty buoyant:
“It is important to remember that this index is still firmly in expansion territory and that the slack in the economy continues to be eroded. Furthermore, upward GDP revisions due in late September are likely to indicate that the amount of spare capacity is smaller than previously thought and so we are comfortable with our November BoE rate hike prediction.”
Samuel Tombs at Capital Economics also pointed out that a reading of 55.4 was still fairly robust, and indicates that manufacturing will continue to be a positive factor in the UK’s economic recovery.
“The output balance still points on the basis of past form to a pick-up in the quarterly growth rate of manufacturing output from 0.2% in the second quarter to about 1% in Q3. Note too that both July’s CBI Industrial Trends survey and the Bank of England’s agents’ score of manufacturing output in June were consistent with similar pick-ups… Accordingly, the manufacturing sector should still make a punchy contribution to overall GDP growth in the second half of this year.”
Dominic Bryant at BNP Paribas was more guarded. He said that sterling’s rise and weaker eurozone manufacturing was likely to have led to the UK’s decline, which would continue to be a headwind.
“Although global demand should remain supportive, barring any significant downside from Russia, the impact of the substantial appreciation of sterling seen since July 2013 is likely to be a headwind to UK manufacturing.
“Combined with the fact that even after today’s fall, the manufacturing PMI is still around the level seen at the peak in previous cycles means there is probably not much upside to this indicator in the near term. Most probably it will head sideways or drift lower.”
This comes at the same time as news that UK manufacturing activity unexpectedly slowed sharply in July as both output and new order growth dipped.
The fall to 55.4 in the Markit/CIPS UK purchasing managers’ index (PMI) - from 57.5 in June - hit sterling, which dropped 0.2 per cent to 1.6849 against the dollar on the news. Economists polled by Bloomberg had expected a reading of 57.2 for the main gauge.
Compiler Markit commented that UK manufacturing had begun the third quarter on a firm footing, as production and new orders both continued to rise at robust, above long-run average rates.
Click here to see Markit’s chart tracking the UK manufacutring PMI since 2000.
