Manufacturing expansion pace slows

At 55.4 in July, down from 57.2 in June, the headline seasonally adjusted Markit/CIPS Purchasing Manager's Index(PMI) posted its lowest reading in one year, but still remained well above the survey average of 51.5. The PMI has now signalled an improvement in operating conditions throughout the past 17 months. Manufacturing production rose again in July, with substantial rates of expansion being maintained across the consumer, intermediate and investment goods sectors. However, with growth also easing in each of these product categories, the overall pace of expansion slipped to its lowest in just over one year. The sustained growth in output volumes was again underpinned by a marked uptick in levels of incoming new orders during July. Companies linked increased inflows of new work to the launch of new product lines, price promotions, stronger economic sentiment and rising demand from both domestic and overseas clients. However, in line with the trend seen in output, rates of increase in both total new orders and new export business were slower than in June. Job creation was recorded for the 15th successive month in July, with broad-based gains in payroll numbers seen in the consumer, intermediate and investment goods sector and also at SMEs and large-scale producers. However, the rate of increase in staffing levels slipped to a nine-month low. Average output charges and input costs both continued to rise during July. Selling prices increased for the thirteenth successive month, reflecting improved inflows of new work and the pass-through of higher input costs – which rose for the third month running. Rob Dobson, senior economist at Markit, said the Bank of England would not be overly worried by the weaker numbers. "Policymakers were expecting growth to slow slightly from the impressive rate seen in the first half of the year, in part due to expectations of higher borrowing costs next year. Importantly, the rate of growth remains historically very strong to help contribute to yet another robust expansion of the economy in the third quarter." Lee Hopley, chief economist at EEF, said: "The bottom line from this figure is that the relatively rapid acceleration in growth seen in the first half of 2014 will ebb over the second half of the year. The lower reading than previously shouldn't set off any alarm bells as the indicator is still consistent with a decent pace of growth across the sector and, continued prospects for more job creation. "The survey also points to companies benefiting from new product developments and efforts to sell into emerging markets. Nevertheless the patchy industrial performance across Europe, initial signs of some cost pressures emerging and, capacity issues in the supply chain could yet weigh on the sector in the coming months." David Richardson, head of manufacturing at Lloyds Bank Commercial Banking, Mid Markets, added: "While some of the forward momentum has slowed, the overall performance of the manufacturing sector so far this year has been positive. The country's makers have offered a robust source of job creation and export activity, in the face of a strengthening sterling. "For us, it has been pleasing to see our manufacturing customers invest in state-of-the-art plant and machinery, drive efficiencies and fund cutting-edge R&D, which are all critical to the development of a high value manufacturing economy."