UK domestic demand helps manufacturing to sustain growth momentum

Growth was better than economists had forecast – it keeps the PMI index comfortably above the fifty level

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The Independent Online

UK manufacturing activity maintained its momentum in May, and confidence rose as strong domestic demand buoyed orders.

IHS Markit’s Purchasing Managers Index (PMI) was at 56.7 in May after reaching 57.3 the previous month: the highest in three years.

The reading was better than economists had forecast and keeps the index comfortably above the 50 level dividing expansion from contraction.

Markit said growth is largely being driven by domestic demand, with the export backdrop improving “only in fits and starts” despite the pound’s 14 per cent drop since the Brexit vote in June 2016.

But it was positive on the outlook for manufacturing, citing “solid” new orders, optimism at a 20-month high and the biggest jump in backlogs of work for six years.

“The sector should have sufficient momentum to see it through the uncertainty generated by the current unexpected general election and into the start of Brexit negotiations later in the quarter,” said Rob Dobson, senior economist at Markit.

Manufacturing only accounts for a small part of the economy, so its performance may not be enough to lift overall growth, which slumped to 0.2 per cent in the first quarter. Economists in Bloomberg’s survey predict a 0.3 per cent pace through the rest of 2017.

One pressure point for the UK is accelerating inflation, which is hitting households. The factory report showed that while measures of both input costs and output charges eased in May, both remain elevated, with the latter close to a record high.