3rd June 2013
UK manufacturing has received a welcome boost as better-than-forecast numbers show May hit a 14-month high writes Philip Scott.
The UK manufacturing Purchasing Managers Index published today, hit 51.3 in May, up from a revised-up 50.2 in April. The survey is broadly encouraging, suggesting that manufacturing activity is on course for clear growth in the second quarter. This would be a real boost to overall growth hopes for the second quarter as manufacturing output contracted by 0.3% quarter-on-quarter in the first quarter following a pretty torrid 2012.
The survey indicated that overall activity grew for a second month running and at the fastest rate for 14 months. Output growth picked up appreciably in May, with expansion reported across consumer, investment and intermediate goods.
In addition, with orders at a 25-month high in May and stocks depleted, prospects look decent for output growth in the near term at least. Further good news saw manufacturing employment rise in May at the fastest rate for 14 months, although the increase was modest.
While manufacturing represents only some 10% of UK GDP, rises in the sector typically have a knock-on impact on other sectors.
Dr Howard Archer, chief European & UK economist at IHS, says: “The survey is encouraging across the board, and is a boost to hopes that the UK economy may be gradually establishing a firmer footing. However, the sector still faces a tough job to establish sustained, significant improvement. In domestic markets, manufacturers currently face current relatively muted investment intentions, limited consumer purchasing power and tight public spending.
“Still significant concerns about the outlook are likely to be limiting the willingness of many customers, or potential, customers to commit to buying big-ticket manufactured goods in particular. Meanwhile, subdued and stuttering global economic growth, and Eurozone economic weakness in particular, is a constraint to foreign demand for UK manufactured goods. It is encouraging though that the May purchasing managers’ survey indicated that there had been a pick-up in orders from North America, East Asia, Russia, Germany and France.”
Archer believes also that the improved figures reinforces belief that the Bank of England is likely to sit tight on Quantitative Easing or any other stimulative action at the MPC’s June meeting this week. “We think more QE will eventually occur, but most likely after Mark Carney tales over as Governor in July,” he adds.