UK manufacturing index edges off seven-month low – PMI

British manufacturing activity inched higher in May after hitting a seven-month low in April, but strong domestic demand was largely offset by weak exports, a closely watched survey showed on Monday.

The Markit/CIPS manufacturing Purchasing Managers’ Index (PMI) rose to 52.0 in May from a downwardly revised 51.8 in April, a weaker increase than the rise to 52.5 forecast by a Reuters poll of analysts.

“Expectations of a broad rebound in UK economic growth during the second quarter of the year are called into question by these readings,” Markit senior economist Rob Dobson said.

“Manufacturing looks on course to act as a minor drag on the economy, as the sector is hit by the combination of the strong pound and weak business investment.” Hiring was the slowest in more than two years, suggesting the boom in job creation that Britain has enjoyed since mid-2013 may be starting to tail off.

British factory output rose just 0.1 percent in the first three months of 2015, official figures showed on Thursday, and earlier on Monday an industry body cut its growth forecast for 2015 as a whole, citing knock-on effects from weakness in the oil and gas sector.

The downbeat news on manufacturing contrasts with a more upbeat message in other sectors of the economy, and on Sunday the Confederation of British Industry said the private sector as a whole was enjoying its fastest growth for a year.

The PMI’s output growth component edged downwards to its lowest since September 2014.

Markit, which compiles the survey, said consumer goods was the best performing area, and investment also strengthened modestly. Orders growth was little changed from April, while export demand was stable after a fall the month before.

Sterling hit its highest level on a trade-weighted basis since mid-2008 in May. Dobson said manufacturers were facing a “double-whammy” from currency strength as it encouraged consumers to buy imported goods instead, something which also showed up in Thursday’s weak first-quarter GDP data.

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.