Manufacturing rebound slows
A REBOUND in manufacturing slowed in June from the previous month’s 15-year high as export order growth all but ran out of steam, a survey has showed.
However, employment, a lagging indicator, rose at its fastest pace since February 1995 as companies added staff to keep up with rising production.
The Markit/Chartered Institute of Purchasing and Supply manufacturing PMI fell to 57.5 last month from 58.0 in May, bang in line with forecasts for a slight deceleration but still well above the 50.0 mark that separates contraction from growth.
“The rate at which the sector has been recouping the output lost during the recession has been nothing short of remarkable, with around one third having been recovered by the end of June,” said Markit senior economist Rob Dobson.
“However, the latest survey offered signs that conditions may have passed their peak … With the impact of austerity measures on demand both here and abroad still unknown, the latter half of the year may provide a real test for the sustainability of the recovery.”
Britain’s coalition government has proposed to eliminate most of a record budget deficit of about 11 percent of national output by the time of the next parliamentary election in 2015.
That has raised concerns that the fragile recovery from an 18-month recession could be held back as the government slashes spending and hikes taxes.
The PMI survey showed export orders growth, which had probably been helped over the last year by a weaker pound, had nearly ground to a halt. The export orders sub-index fell to 50.7 from 56.7 in May for its lowest reading since August 2009.
Financial market troubles in Europe triggered by some countries’ precarious fiscal positions have hit growth prospects on the continent and hurt the euro, making British goods less competitive with the euro zone, its biggest trading partner.
New orders growth slipped to its weakest since November 2009, the survey showed, although overall output continued to expand at a sharp rate with a strong performance across the consumer, intermediate and investment goods sectors.
Employment also picked up thanks to an increase in production, posting its strongest growth since February 1995.
While Markit questioned the outlook for the sector, price pressures cooled slightly in June — an outcome which may provide some relief to Bank of England policymakers who expect above-target inflation to ease over the coming months.
Nonetheless, both input and output price inflation — what manufacturers pay in costs and what they charge for their goods — remain near historically strong levels and the central bank remains on alert for any sign of stubborn inflation.
Consumer price inflation eased to 3.4 percent in May from 3.7 percent in April, supporting the Bank’s prediction that inflation will return to its 2 percent target in the coming months.
However, some members of the Monetary Policy Committee have said there is a risk that inflation could become entrenched and require a tightening of policy at some stage.
Bank inflation hawk Andrew Sentance voted for a rate hike at the central bank’s June meeting – where policy was left unchanged. That was the first such vote since August 2008.
The coalition government is hoping that monetary policy can stay loose to help engineer a private sector recovery while it slashes spending – and jobs – across government departments.