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Manufacturing sector growth 'masks weakness'


UK manufacturing has shown growth that has surprised analysts but there are warnings of underlying weaknesses in the sector.

The IHS Markit/CIPS UK Manufacturing PMI rose slightly to 54.4 in May, with a reading above 50 indicating growth.

This was up slightly from April’s 17-month low of 53.9, showing growth for the 22nd consecutive month. Economists had been expecting a slight drop to 53.5.
But the upward trend masks “several areas of concern”, according to those behind the survey.
They added: “Although growth of production accelerated to its best during the year so far, this was mainly achieved through the steepest build-up of finished goods inventories in the 26-year survey history and a sharp reduction in backlogs of work.”
Growth of incoming new business remained “solid” but the pace of expansion fell to an 11-month low.
The index said: “The slower trend reflected a softer increase in new work from the domestic market, as inflows of new business from overseas strengthened slightly.
“Companies reported growth in new work from mainland Europe, North America, China, India, South America and Africa.”

The rate of job creation slowed as manufacturers faced rising cost inflation and supply chain pressures, however.
Duncan Brock, group director at the Chartered Institute of Procurement and Supply, said: “To the casual eye, the manufacturing sector appears to be in a robust mood with a further rise in activity and the highest output growth for five months.
“But pore over the detail, there are some darker developments taking place, impacting on new order and jobs growth and creating the lowest optimism for six months.”
David Cheetham, chief market analyst from XTB Limited, said the reading was “better than expected” and would come as a “pleasant surprise for the Bank of England”.
He added: “The reading is the first to beat consensus forecasts so far this year and ends a run of three disappointments in the past five releases.

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“However, the figure itself remains relatively weak in being the third lowest in the past 12 months, but it still represents a beat nonetheless and will raise hopes for next week’s more important services release.”
The PMI, the official purchasing managers’ index, is based on data compiled from monthly replies to questionnaires sent to purchasing bosses in more than 600 industrial companies.

Source: SKY