Manufacturing bounces back in May but underlying weakness persists

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Output in Britain’s manufacturing sector nudged up in May but the growth acceleration is masking “underlying weaknesses” that could persist.

The Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) showed a reading of 54.4 last month, higher than the 53.9 for April.

Economists were expecting a figure of 53.5. A reading above 50 indicates growth.

While representing a rebound from April’s 17-month low, the report said the improved trend “masked several areas of potential concern”.

Growth was mainly achieved through the steepest build-up of finished goods inventories in the survey’s 26-year history and a sharp reduction in backlogs of work.

In addition, manufacturers reported the weakest increase in new orders since June 2017, which resulted in hiring intentions falling, especially in the consumer goods sector.

Rob Dobson, director at IHS Markit, which compiles the survey, added: “At first glance, the mild acceleration in the rate of output growth and rise in the headline PMI would appear positive outcomes given the backdrop of the slowdown seen in manufacturing since the turn of the year.

“However, scratch beneath the surface and the rebound in the PMI from April’s 17-month low is far from convincing.

“A slowdown in new order inflows meant the expansion in production was achieved only by firms working through their backlogs of work. Weaker than expected sales meanwhile led to the largest rise in unsold stock in the survey’s 26-year history.”

Sterling was largely unmoved by the news, holding steady against the dollar and euro at 1.32 and 1.13 respectively.

The survey also showed that input price inflation accelerated for the first time since January as higher oil prices took their toll.

To compound matters for the sector, Donald Trump’s trade war is expected to dent the prospect of further growth this year.

Lee Hopley, chief economist at manufacturers’ organisation EEF, said: “Given that we are seeing a similar picture in major European markets and the advent of escalating trade tensions it seems likely that UK manufacturing will stay on this slowing trajectory in the second half of the year.

“But to complicate matters for monetary policy makers, price pressures have re-emerged as commodity prices have picked up in recent months.”

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