InvestmentsMay 3 2013

UK purchasing managers’ index surpasses forecasts

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The UK’s improving economic outlook continued apace last week when the latest purchasing managers’ index (PMI) data substantially beat expectations.

The data, from Market/CIPs estimates, found the UK’s manufacturing PMI was 49.8 in April, a substantial increase from 48.6 in March and above the forecasted figure of 48.5. A figure of more than 50 indicates expansion.

The construction PMI data also improved substantially, up from 47.2 in March to 49.4 in April, once again far ahead of the predicted figure of 48.

The data meant both the manufacturing and construction sectors still contracted, but only just during the past month.

However, the services sector, which had been the primary driver of growth in the economy in the first quarter of 2012, also beat expectations, with a figure of 52.9 showing that the sector is still expanding.

It was the highest figure for the services sector since August 2012, a month that was distorted higher due to the effect of the London Olympics.

The data was the latest piece of good news for the UK economy, after the country’s GDP was estimated to have grown by 0.3 per cent in the first quarter of 2013, banishing fears of a triple-dip recession.

David Tinsley, UK economist at BNP Paribas, said the data was “another useful shot in the arm [against downbeat] expectations on the economy”.

Mr Tinsley said: “The current level is not consistent with especially rapid service sector expansion, but nonetheless it is consistent with forward momentum.

“With the improvement in the surveys, and indeed the weather, it is hard to see right now why GDP growth in the second quarter should be worse than the first quarter’s 0.3 per cent.”

But Peter Dixon, economist at Commerzbank, said it was “hard to get excited” about the manufacturing and construction figures, even though they beat expectations, because both sectors were still contracting.

He said: “This shows the economy was never as bad as some comments suggested but we should be careful about overdoing the reaction to above-expectations numbers when the real drag on the economy is what is happening in the eurozone.”

However, with recent data showing that the manufacturing data in both Germany and China disappointed, and with the growth in US manufacturing dropping to its weakest level since October 2012, Mr Tinsley pointed out the UK was moving against the grain with its positive surprise.

The manufacturing data was particularly boosted by the pick-up in new export orders, as UK companies reported rising sales to North America, the Middle East, Latin America and Australia.