Britain misses out as global manufacturing surges

- Reuters, LONDON/SINGAPORE

Jul 4, 2017-

British factories were left out of a demand-driven surge in activity across much of Asia and Europe in June, as weakness in sterling failed to translate into export growth, surveys showed.

Factories in the euro zone rounded off the first half of 2017 by ramping up at the fastest rate for over six years while Asia’s tech-manufacturing economies were helped by growing global demand for electronics products.

But British manufacturing grew more slowly than anyone polled by Reuters expected as consumers faced the double-hit of accelerating inflation—caused in large part by the fall in the pound since last year’s vote to leave the EU—and slowing wage growth. Monday’s survey suggested the supposed silver lining of a weakened pound—more competitive exports—is proving elusive and could make Bank of England officials think twice about raising interest rates. The Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) fell to 54.3 from a downwardly-revised 56.3 in May, a three-month low and below all forecasts in a Reuters poll of economists that pointed to a reading of 56.5. A reading above 50 indicates growth.

“The decline in the PMI in June robustly challenges hopes that manufacturing and exports will pick up and offset the consumer spending slowdown. Today’s manufacturing report weakens the case for raising interest rates soon,” said Samuel Tombs at Pantheon Macroeconomics.

June’s manufacturing PMI for the euro zone rose to 57.4, its highest since April 2011 and up from May’s 57.0.

Suggesting the bloc’s momentum will continue into the second half, new orders rose at the fastest rate since early 2011, backlogs of work increased at the fastest pace in over 13 years, raw materials were depleted and factories increased headcount at a near-record pace.

The upturn came alongside factories increasing prices, as they have done for nine months, welcome news for policymakers at the European Central Bank who have been battling for years to get inflation back to their 2 percent target ceiling.  Inflation was a stronger-than-expected 1.3 percent in June, official flash data showed on Friday, and while still below target, recent strong economic data meant ECB chief Mario Draghi last week raised the prospect of policy tightening.

In Britain, central banker have started to signal that a first rate hike in a decade might be approaching to help curb the sharp rise in inflation. BoE Governor Mark Carney says he is watching to see how the economy copes with the launch of Brexit talks and whether weakness among consumers could be offset by investment and exports. Private sector surveys of manufacturers in Asia showed factories in China, South Korea, Japan and Taiwan picked up in June.

But continued declines in energy prices, which weighed on manufacturing in Indonesia and Malaysia, could hurt these two economies, while in India, sluggish domestic demand offset strong foreign demand and led to a slowdown.

Published: 04-07-2017 10:32

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