By Daniel Hunter
UK manufacturing growth softened at the start of the second quarter of 2012, after making a solid start to the year in the opening quarter.
The seasonally adjusted Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) dipped to 50.5 in April, below March’s revised reading of 51.9, but still above the neutral 50.0 mark that separates expansion from contraction. The PMI has signalled growth in each of the past five months.
Manufacturing output expanded for the fifth month running in April. However, the rate of increase eased to its weakest in the year-to-date, partly due to a sharp reduction in new export orders. The latest decline in production was largely centred on the consumer goods sector. In contrast, output rose at producers of intermediate and investment goods.
Where an increase in output was reported, this partly reflected work on existing contracts. Backlogs of work fell for the fifteenth month in a row and at a faster-than-series-average pace.
“The UK recovery was always likely to be bumpy and subdued. This is still very much the case at manufacturers, with the April PMI indicating that growth of the sector eased to its weakest in the year-to-date," Rob Dobson, Senior Economist at Markit and author of the Markit/CIPS Manufacturing PMI.
"Although the expansion in output is a positive in itself, as is a modest increase in employment, manufacturers are still sustaining growth through past demand, a circumstance that can not continue indefinitely.
“What manufacturers really need to see is a marked improvement in new order inflows, so April’s sudden sharp drop in new export orders was a real disappointment. It seems that weaknesses in our major trading partner, the Eurozone, are starting to hit home, especially for consumer goods producers.
"This further highlights the impact of ongoing weakness in the European household sector already signalled by Markit’s UK Household Finance Index and the Eurozone Retail PMIs.”
Jeremy Cook, chief economist at foreign exchange company, World First, said if the country was to slip into recession, it would only be on a short-term basis.
“The UK’s economy has continued to ‘bounce along the bottom’ in April, with the 5th consecutive month of alternating improvements and deteriorations in the manufacturing sector," he said.
“Manufacturing contributed negatively by 0.1% to GDP in Q1 when the PMI averaged 51.9, so this reading of 50.5 could indicate that a similar drag may occur in Q2 unless an improvement is forthcoming.
“It’s obvious that the Q1 GDP figure was a horror show but the market seems reluctant to believe that the UK is in recession and if it is, that it will be a short one.
“The -0.2% print stood so far apart from other data, such as the PMI surveys, and it is on this basis that some analysts, myself included, believe that we will see the upcoming revisions move the number into positive territory. It is this belief which could be contributing to the recent strength of sterling.
“Following its recent good run traders cut their bets on an improving pound in preparation of a poor figure today. Fears persist that a run of poor PMIs this week could see a slash lower for the pound.”
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