UK output still growing but pace cools off

MANUFACTURING output continued to grow in the UK, US and the Eurozone last month, even as China saw its first contraction in 16 months following a clampdown by the government on property speculation and tighter credit controls.

A slowdown in export orders pulled the CIPS/Markit UK manufacturing purchasing managers’ index (PMI) down by 30 basis points to 57.3 in July beating City forecasts of a drop to 57.0. Although the index remains comfortably above the 50 mark – the tipping point between expansion and contraction – the surging recovery seen until now is unlikely to be sustained, analysts said.

Across the Atlantic, the US Institute for Supply Management’s manufacturing gauge fell from 56.2 to 55.5 last month. The drop followed a downward movement in broader US economic growth from 3.7 per cent in the first quarter to 2.4 per cent in the second quarter.

HSBC’s manufacturing PMI for China declined for the first time in 16 months, slipping from 50.4 to 49.4, indicating Beijing’s fiscal tightening is succeeding in reining in the country’s booming economy.

Only the Eurozone showed accelerating industrial growth. Germany and Italy powered the region’s manufacturing PMI 1.1 points higher to 56.7, although France slipped to its weakest rate of growth in 10 months.

The Eurozone has been insulated from falling demand as a dramatic weakening of the euro on a trade-weighted basis since the start of the year has made exports cheaper.

Nick Kounis, head of macro research at ABN Amro, said: “What we are seeing globally is a turn in the industrial cycle, with some loss of support from inventories. We are past the upswing of the V-recovery.”

Vicky Redwood at Capital Economics said the Eurozone was worse-placed than the UK and US in the medium term due to debt issues.

Sterling rose 1.4 per cent against the dollar at $1.5899.