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Growth in UK Manufacturing Slows in June

After two exceptionally impressive months of growth in the UK’s manufacturing sector, June saw an unexpected comedown as manufacturing output slowed.
The news comes from the latest survey of purchasing managers working in the sector, and caught many economists off guard who had been expecting similar levels of growth expansion to the prior two months.
Whilst the survey did indeed point to the 11th straight month of expansion for the sector, the rate of increase slowed as businesses reported smaller increases in new orders from domestic and export markets.
The purchasing managers’ index (PMI) from IHS Markit fell to a three-month low of 54.3 in June. For those unfamiliar with Markit’s well respected PMI, any reading above 50 indicates growth. Economists in London had forecast a reading of 56.6 – just slightly above the reading of 56.3 that the month of May produced. That would have been a significant high, lending further credence to the notion that the UK’s manufacturing industry had shrugged off any Brexit uncertainty.
Upon the release of the survey, Sterling fell 0.4% against the dollar, ending a rally in value which had been gathering pace over the second half of June.
Rob Dobson, senior economist at HIS Markit said that manufacturing had “weathered the uncertainty of a general election and start of formal Brexit negotiations”, but there was a broad-based slowdown evident during June.
That ‘broad-based slowdown’ includes a fall in output in each of Markit’s categories, which include consumer, investment and intermediate goods, which includes components used in the manufacturing of other products, like hose fittings.
Some economists have been pinning their hopes to manufacturing in recent quarters, suggesting that as the UK economy reforms itself in the wake of Brexit, manufacturing could become central once again. This would, in turn, help to offset the slowing of the UK’s famously robust services sector.
George Nikoladis, senior economist at the manufacturing trade organisation EEF, said that whilst growth did take a tumble in June, the average for the past three quarters still indicated the fastest rate of quarterly growth in three years, something which shouldn’t be overlooked.
He said that “This adds to recent data over the past few months indicating that industry will continue to support the UK economy by providing a counterweight to slowing services output,”
A number of surveys from Markit have found evidence of export-led growth, bolstered by the weakness of the pound, but these findings have not yet been reflected in official numbers from the Office for National Statistics.
The report found that apart from some orders from the US and in western Europe, exported fared averagely in June, as suspicions that the weak but stable pound is becoming less appealing to foreign buyers. The survey also found that the higher cost of inflation brought on by weaker currency was also starting to soften, which is more than good news for consumers.
Compared to the rest of the Eurozone, the UK’s faltering manufacturing growth is very poor indeed. A combined Eurozone PMI for last month hit 57.4, the highest rate for 6 years.

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