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'Near-stagnant' UK manufacturing sector shows signs of recovery

04 Aug 2015

The UK manufacturing sector showed small signs of growth in July following a two-year low in June, according to the monthly industry survey by Markit and the Chartered Institute of Procurement and Supply (CIPS).

Markit’s Purchasing Managers' Index (PMI) for manufacturing is based on data compiled from questionnaires sent to purchasing executives in over 600 industrial companies. A figure above 50 indicates expansion and the index rose to 51.9 in July, up from 51.4 in June.

However, this is still below the average of 54.3 the sector has had since April 2013, and Markit has described growth in manufacturing as ‘near-stagnant’. The pace of growth of new orders slowed to 52.2, its lowest since September 2014, and new export orders contracted for the fourth consecutive month in July.

Rob Dobson, senior economist at Markit, said: ‘Although an uptick in the headline PMI breaks the decelerating trend in UK manufacturing, growth remains near-stagnant and suggests that the sector is continuing to act as a drag on the economy.’

The high value of the pound against the euro continues to be a problem for the manufacturing sector, leaving it reliant on domestic demand. However, Dobson did not expect this to lead to a rise in interest rates.

‘The struggling manufacturing sector, and the impact of the strong pound on export performance, will be a worry for the Bank of England,’ he said. ‘However, with the goods-producing sector accounting for only one-tenth of the economy, these woes may take second place to the health of the far larger services sector in determining the timing of the first interest rate hike, suggesting firms will have to adjust to the pound trading at its current highs.’

David Noble, Group Chief Executive Officer at the CIPS, said: ‘Slowly does it this month, as the sector stays in positive mode, but at a softer rate of growth than hoped for given the trend since April 2013. Employment continued to rise which enabled backlogs and current contracts to make significant headway. However, the sector must be wondering how the absence of a significant numbers of new orders will affect manufacturing performance in the coming months’.