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Manufacturing may hold back growth

Published 01/06/2015

The manufacturing sector has put in a lacklustre performance, figures show
The manufacturing sector has put in a lacklustre performance, figures show

Hopes for a growth rebound after a slow start to 2015 for the UK economy were thrown into doubt today after figures showed a lacklustre performance in May for the beleaguered manufacturing sector.

It posted a reading of 52 on the closely-watched CIPS/Markit purchasing managers' index (PMI) survey - where 50 separates growth from contraction. This was only slightly up on the seven-month low of 51.8 in April.

The figures also showed employment growth in the sector had virtually ground to a halt with its weakest reading since a run of job increases began two years ago.

Sterling fell a cent against the US dollar.

It comes as a separate survey by manufacturers' organisation EEF pointed to slower growth amid a loss of momentum in the industry. Manufacturing is still lagging behind its level at the start of the recession in 2008.

Official figures last week showed broader UK economic growth in the first quarter slowed to 0.3% but there are hopes of a rebound with the CBI saying at the weekend that expansion had more recently "cranked up several gears".

However, following today's survey, Rob Dobson, senior economist at Markit, said: "Expectations of a broad rebound in UK economic growth during the second quarter of the year are called into question by these readings.

"Manufacturing looks on course to act as a minor drag on the economy, as the sector is hit by a combination of the strong pound and weak business investment spending."

The figures showed the consumer goods sub-sector was the stand-out performer but manufacturing of intermediate goods - those produced for sale to other companies - continued its downturn.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "This is a lacklustre survey.

"While evidence of robust consumer spending in April and May has lifted hopes that the economy is on course to see markedly improved GDP expansion in the second quarter, the manufacturing sector currently appears to be struggling for momentum.

"Lacklustre manufacturing activity is worrying for hopes that UK growth can become more balanced and less dependent on the services sector and consumer spending."

Samuel Tombs of Capital Economics said: "Looking ahead, the manufacturing sector looks set to continue to struggle - it is unlikely that the full adverse effects of sterling's recent appreciation have been felt yet.

"But given the manufacturing sector's small share of GDP and the robust nature of the recovery underway in the services sector, the UK economy should still enjoy a year of robust overall GDP growth."

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