Manufacturing remains heavily reliant on domestic demand, says survey

Rebalancing of the economy remains firmly in the arena of rhetoric rather than reality, according to a senior economist at Markit, whose purchasing manufacturers index (PMI) survey released today, as part of its July 2015 report on manufacturing, showed that conditions in the UK manufacturing sector are ‘relatively subdued’ at the start of the third quarter. The survey, which gathered data collected from purchasing managers from 13-28 July, showed that the PMI stood at 51.9. slightly above the long-run average of 51.5 recorded from January 2009 to July 2015. Production overall expanded in the last quarter, but this depended strongly on the consumer goods sector, the survey found; growth in intermediate goods was ‘lacklustre’ while investment goods contracted.

The picture was particularly gloomy for new export business, which declined in July for the fourth month in a row, mainly because of the strength of the pound against the euro. The rate of growth in new orders was at a ten-month low. Consumer goods remained a bright point, seeing levels of new work from overseas rising solidly. “This reflected the ongoing upturn in new orders and efforts to clear backlogs of work,” Markit said. Average input costs fell after rising for the first time in ten months in the previous survey, with chemicals, metals, plastics, foods and textiles all becoming cheaper.

Markit senior economist Rob Dobson did not find the survey cheering. “Although an uptick in the headline PMI breaks the decelerating trend in UK manufacturing, growth remains near-stagnant and suggests that the sector is continuing to act as a drag on the economy, he said. “With the sterling-euro exchange rate still sapping export demand and constraining growth of total order inflows, its seems that we will again look to the service sector to sustain any semblance of reasonable economic growth in the third quarter.”

The manufacturing sector is still reliant on strong domestic demand, particularly in the consumer sector, Dobson said. “The continued weakness of investment goods demand suggests that ‘rebalancing’ remains firmly in the rhetoric as opposed to reality column.”

The managing director of UK robotics and automation supplier Fanuc, Chris Sumner, was more cheered by the survey. ”Following the unexpected slowdown in June’s PMI figures we’ve seen a resurgence in manufacturing output for the month of July,” he said. ”We’ve seen orders grow by 25 per cent, particularly within the medical sector, driven by healthy domestic orders and relatively buoyant export market driven by a more stable European market.