UK manufacturing has just suffered its worst month since February 2013, suggests the latest purchasing managers index, or PMI, covering manufacturing. The Eurozone slowed too, although its decline was not as significant as that seen in the UK. Economists warned, however, that Eurozone growth in the sector is overly reliant on Germany.
The UK Manufacturing PMI fell from 52.4 in June to 48.2. A score over 50 is normally seen to be consistent with expansion, and a reading below 50 with contraction. In the Eurozone, the Manufacturing PMI fell from 52.8 in June, a six-month high, to 52.0
The index was less than 50 in both Greece and France, although even in these countries the index was higher than the UK equivalent.
Rob Dobson, Senior Economist at Markit, which compiles the survey said: “The downturn was felt across industry, with output scaled back across firms of all sizes and across the consumer, intermediate and investment goods sectors, although exporters did report a boost from the weaker pound. However, the improvement in exports was less marked than previously estimated, blamed in part on sluggish overseas demand. The downside of the currency was an upsurge in input price inflation to a five-year high on the back of rising import costs."
Scott Bowman, UK Economist at Capital Economics, said that he thought the PMI index reinforces the case for the Bank of England to loosen monetary policy when it next meets, either via a rate cut, or quantitative easing, or indeed both, but he also suggested that the data was not quite as worrying as others are suggesting. He said: "We think that the response of policymakers, along with the boost to exporters’ competitiveness from the fall in the pound – as already seen in this survey – will provide support to the economy. Accordingly, we think the ultimate damage from the vote to leave the EU will end up smaller than some others fear.“
As for the Eurozone, Chris Williamson, Chief Economist at Markit raised a concern over what he called the lop-sided nature of growth in the region. He said: "Dig deeper beyond the headline numbers and more worrying pictures appear. Expansions in output and employment are clearly being driven to a large extent by surging growth in Germany, while growth has almost stalled in both Italy and Spain and contractions are being seen in France and Greece.”