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UK manufacturing PMI rises

Improvement in domestic market and overseas demand.

The seasonally adjusted UK Purchasing Managers Index (PMI), which measures manufacturing activities in the country, rose to a two-year high of 52.5 in June compared to 51.5 in May, primarily due to rise in new business, according to data collected from 600 industrial firms between 12 and 25 June 2013 by research firm Markit and the Chartered Institute of Purchasing & Supply (CIPS).

A PMI of above 50 implies that the sector is experiencing growth, and below hints at contraction.

During the month, domestic market conditions and demand from overseas improved further.

Demand from domestic markets and clients based in Europe, China, North America, Scandinavia and the Middle East grew during the month. Incoming new orders rose for the fourth consecutive month in June, while manufacturing employment remained unchanged.

Price pressures remained subdued during the survey period. Input costs declined for the third straight month in June due to fall in costs for chemicals, feedstock, metals, packaging and plastics.

During the month, average factory gate prices declined primarily due to strong competition, while finished goods stocks declined as companies used their existing inventory to satisfy the dual requirements of new and existing contracts.

Rob Dobson, senior economist at Markit, said: "The UK manufacturing sector made positive strides on the recovery path during the second quarter of the year. June saw output and new order growth hit rates not seen since early-2011, as a brightening domestic market and resilient overseas demand led to a broad-based expansion across the sector.

"The near-term outlook for output also remains on the upside, as above-trend sales growth depleted inventories that manufacturers will need to rebuild later in the year. Job creation is still weaker than hoped for, but this should improve if solid demand growth is sustained and eats into spare capacity.

"The survey suggests that manufacturing output rose by around 0.5 per cent over the second quarter. Taken with recent signs of service sector strength and a stabilising construction industry it paints a picture of UK economic growth picking up from the opening quarter’s 0.3 per cent to at least 0.5 per cent. It therefore seems increasingly unlikely that the Bank of England’s policymakers will opt for further asset purchases at its meeting later this week."

David Noble, CEO of CIPS, said: "Momentum is building in manufacturing as the sector begins to work up a head of steam. The industry experienced another good month to round off a solid Q2. The two-year high in new business growth will do much to reassure firms we are on track for a recovery. Both domestic and export orders played their part, with consumer goods showing particular signs of traction.

"Employment is the one disappointing spot, showing little change from last month; a reminder of the anxiety that still exists in the sector. The swell in order books and increased levels of purchasing activity however, signal that the subdued labour market trend may be shortlived.

"Firms will also take heart from the drop in input costs, which has enabled them to reduce their own prices for the first time in over three years. This has eased the pressure on margins and enabled manufacturers to stay competitive. Long may it continue.2