Engineering news
The surprise drop in factory output in May means the recovery is “too fragile” for policymakers to make changes, PMI survey firm Markit has warned.
The organisation's senior economist Chris Williamson said the weaker data stood in “stark contrast” to buoyant business surveys, which show the sector to be in “rude health”. “While surveys such as the PMI, CBI and British Chambers of Commerce survey have signalled robust growth of factory output being sustained in the second quarter, data from the Office for National Statistics showed UK manufacturing output slumping 1.3% in May. Analysts polled by Reuters had been expecting a 0.4% increase,” Williamson said.
The decline in May was the largest seen since January 2013 and also contrasted with rising production in prior months, Markit said. “The ONS offered no explanation for the surprise collapse in production, so we suspect the May downturn is a rogue number and the sector will rebound again in June.” In the meantime, the May numbers would “add to arguments that the recovery remains too fragile for policymakers to be considering any tightening of policy”.
Neil Prothero, deputy chief economist at EEF, the manufacturers’ organisation, said: “This brings to an end a very strong run of data and serves as a reminder that manufacturers continue to face a number of headwinds, not least subdued external demand across Europe, which continues to weigh on export prospects. Monthly production data can be volatile and the dip in May contrasts with other positive surveys and healthy domestic order expectations.
“Despite the dip, manufacturing remains on track to expand for a fifth consecutive quarter, and anecdotal evidence from across the sector continues to point to solid momentum over the second half of the year.”
Markit said the official statistics were also volatile, and pointed out that the more stable three-month trend rate of growth in the official data remains historically strong at 1.1%, which is broadly in line with the Markit/CIPS Purchasing Managers' Index survey. “Although down from 1.9% in the three months to April, this easing will not worry policymakers unduly, unless of course it is followed by a further slump in June.” The PMI survey data suggested the sector saw the strongest quarterly growth for two decades in the second quarter. The UK also enjoyed the strongest improvement in manufacturing business conditions of all 27 countries for which PMI data were available in June.
But according to a survey by BDO, manufacturers' confidence slipped in June for thefirst time in 14 months as challenging operating conditions threaten to slow optimism in the sector. The BDO Optimism Sub-Index for the manufacturing sector, which predicts growth expectations in six months' time, fell from 121 in May to 119.5 last month, BDO said.
By contrast The British Chambers of Commerce Quarterly Economic Survey for the second quarter shows that 46% of manufacturing firms are operating at full capacity, the joint highest reading on record. In the services sector, the percentage of firms operating at full capacity slipped slightly, falling to 44% in quarter two after a 46% reading in quarter one, still above the long-term average and one of the highest readings on record.
The forward-looking orders balances suggest growth in the services and manufacturing sectors could slow in the third quarter. The domestic orders for services firms balance dropped to 30% from 33% and export orders for the sector dropped a full nine points to 30%. The manufacturing sector saw smaller falls but both domestic and export orders also dropped.
Chris Sumner, managing director of the UK division of Japanese robotics firm Fanuc, said that British manufacturing was booming. “As we enter the traditionally quiet summer period UK factories are showing a robust output level matched by strong order books.
“We are seeing a particular jump in orders from the automotive sector, as companies seek to kit out both new and existing plants for higher capacity production. It is clear that the UK's recovery is being fuelled by strong industry, hand-in-hand with the housing market and consumer credit.
“Sustained year-on-year growth in industrial production will make a healthy contribution to GDP. The momentum of job creation in the sector, increased output levels, and renewed investment in technology and automation will be a further boost to confidence.”