UK’s factory growth loses momentum...

 
Julian Harris
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STERLING dropped sharply yesterday as figures showed a marked slowdown in the UK’s manufacturing boom.

The pound sank more than a percentage point to $1.647 in the morning session after a purchasing managers’ index unexpectedly dropped to a seven-month low of 54.6.

The PMI has dropped over seven points since January’s record high of 61.7, the steepest fall over such a period for two and a half years. Figures over 50 indicate economic growth.

“The report further diminishes the likelihood of a rate hike this week, with November looking the most likely point for policy tightening,” responded ING’s James Knightley.

However, British factories have still recorded growth for 21 straight months, with April’s expansion remaining above average levels.

“The overall PMI index is slightly above the average of 53.6 during 1994 to 1996,” noted Citigroup’s Michael Saunders, “and that was a period of fiscal tightening and low pound, which saw solid and well-balanced GDP growth led by business investment plus exports.”

Manufacturing exports accelerated in April, up by around half a percentage point to touch 58.

The global recovery and a weak pound were cited as ongoing forces behind resurgent exports, with strengthening demand from “BRICS” nations Russia and China, as well as the US and Europe.

Foreign markets are helping to offset weak domestic consumer demand, with new orders nearing stagnation at 51.51, down from 54.95 in March and a massive drop from 65.23 in January’s PMI survey.

Backlogs of work also shrank, for the third straight month. Backlogs fell more sharply in April (44.85) than in March (48.61).

Inflationary pressures remain a problem despite the input costs index slowing to 76.3, from 81.2 in March and January’s all time high of 84.

Output costs slowed to 64.2 yet “this is still the third highest index reading since the series began in 1999,” Knightley noted.