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Financial News: UK Manufacturing To Stage Recovery In Q3: Capital

UK Manufacturing To Stage Recovery In Q3: Capital Economics

10/05/2017 - 10:18:00 (RTTNews)

(RTTNews) - British manufacturing sector is likely to have contributed a strong performance over the third quarter as a whole despite the weaker PMI survey in September, Ruth Gregory, an economist Capital Economics, said.

The IHS Markit/Chartered Institute of Procurement & Supply factory Purchasing Managers' Index fell more-than-expected to 55.9 in September from a 4-month high of 56.7 in August, data showed on October 2.

"However, some pull-back in the PMI after two months of strong gains was always likely," the economist observed.

The acceleration in input price inflation may well turn out to be temporary, given that sterling has appreciated a bit in the second half of September.

"On the basis of past form, the three-month average of the survey's output balance is still consistent with quarterly manufacturing growth of just under 1.0 percent in the third quarter," Gregory noted.

That would mark a big improvement on the 0.3 percent contraction recorded in the hard data in the second quarter.

The economist pointed out that the PMI data has signaled much stronger output growth than in the official data for some time now, but there are some reasons to think that the hard data will begin to reflect the survey's optimism.

Firstly, sharp sector-specific falls, which appear to have been under-represented in the surveys' samples, now look to be behind Capital Economics' estimate, the economist said.

Besides this, July's official data showed that the sector has started the third quarter on a solid footing.

Indeed, it would take two consecutive monthly falls of almost 1.0 percent in August and September for Q3's outturn to match Q2's 0.3 percent fall, the economist reckoned.

Finally, the CBI Industrial Trends survey suggested that the manufacturing sector's performance will be much-improved in the third quarter too.

"As a result, we remain confident that the manufacturing sector will stage a recovery in Q3 and help overall GDP growth to gain a bit of pace in the second half of this year," Gregory predicted.

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