Manufacturing PMI at 7-month low

City A.M. Reporter
Manufacturing activity grew less robustly than expected in April, at its weakest pace in 7 months, and a sharp slowdown in new orders cast a cloud over what has been a rare bright spot in the economy.

The Markit/CIPS manufacturing PMI headline index, published on Tuesday, fell to 54.6 in April, its lowest since September, from a downwardly revised 56.7 in March and well below the 56.9 consensus forecast in a Reuters poll. Figures above 50 show expansion.

Although the output prices index eased to 64.2 in April from a record 65.2 in March, the inflation rate was still the third highest since the data were first collected in 1999.

The figures underscore the Bank of England's plight as it struggles to tame inflation running at double its 2 percent target, while trying to protect Britain's fragile recovery.

Official data last week showed the economy returned to growth in the first quarter, but at a sluggish rate that was weaker than forecast by the central bank.

Doubts about the strength of the economy have fuelled expectations Bank will further delay raising interest rates from their record low of 0.5 per cent.

Manufacturing has been one of the healthiest sectors of the economy since Britain emerged from a recession late in 2009. The PMI survey's headline activity rate has stayed above the 50.0 mark that separates contraction from growth for 21 months.

The sector, which accounts for about 13 percent of the economy, grew 1.1 per cent in the first quarter according to official data, helped by a weaker pound and strong export demand.

But Rob Dobson, senior economist at survey compilers Markit, doubted that this would last.

"The manufacturing growth spurt looks to be fading rapidly," he said. "The outlook has deteriorated sharply, with ne w orders growth having collapsed from a booming pace at the start of the year to only register a weak influx of new business in April.

A squeeze on consumer spending was partly to blame, he added.

"Manufacturers reported that the domestic market has weakened considerably in recent months, with consumer demand in particular shifting into reverse gear. The sector appears to now be completely reliant on export orders to sustain growth."

The survey suggested government spending cuts, tax rises and tighter household incomes are starting to erode domestic demand, hitting manufacturers.

The new orders index eased to its lowest level in eight months in April, although new export orders picked up slightly from the previous month.