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Financial News: UK Manufacturing Activity Growth Improves Unexpectedly

UK Manufacturing Activity Growth Improves Unexpectedly

06/01/2018 - 08:55:00 (RTTNews)

(RTTNews) - The UK manufacturing sector unexpectedly registered a faster growth in May, but the trend masked several areas of potential concern, survey data from IHS Markit and the Chartered Institute of Procurement & Supply showed Friday.

The manufacturing Purchasing Managers' Index rose unexpectedly to 54.4 in May from a 17-month low of 53.9 in April. The score was expected to drop to 53.5.

The indicator has signaled growth for the twenty-second straight month.

Although the production growth accelerated to its best in the year-so-far, this was mainly achieved through the steepest build-up of finished goods inventories in the 26-year survey history and a sharp reduction in backlogs of work.

The pace of growth in incoming new business slowed to an 11-month low, reflecting a softer demand from the domestic market. Meanwhile, inflows of new business from overseas markets strengthened slightly.

The pace of job creation in the manufacturing sector also lost momentum in May, with the pace of increase the slowest in 15 months.

UK manufacturers also faced rising cost inflation and supply-chain pressures. The rate of increase in average input prices accelerated for the first time since January.

Although output charges advanced for the twenty-fifth successive month, the rate of selling price inflation eased to its weakest since last August.

"As Brexit worries continue to dominate, the sector will be looking to the UK government to provide solutions and prevent this underlying fragility from becoming entrenched stagnation," Duncan Brock, group director at the CIPS, said.

"The UK's manufacturing sector only makes up around 10 percent of the economy, so we suspect the Bank of England will be paying closer attention to next week's services index as it tries to gauge whether growth is rebounding after the weaker first quarter," James Smith, an ING economist, said.

The economist said the committee has a preference to hike rates sooner rather than later if the data allows, in part to combat the risk of rising wage growth and underlying inflation.

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