The seasonally adjusted Markit/CIPS Purchasing Manager's Index (PMI ) fell to a 26-month low of 51.4 in June, down from a revised reading of 51.9 in May (previously published as 52.0). The PMI has nonetheless remained above the neutral 50.0 mark for 27 consecutive months. June saw UK manufacturing production rise at the slowest pace since April 2013.
Although consumer goods output continued to expand at a solid clip, production fell in the investment goods sector and was broadly stagnant at intermediate goods producers. Domestic market conditions held up relatively well in June, leading to higher inflows of new business, but companies reported that new export orders fell on the back of subdued demand from Europe – partly due to the sterling exchange rate.
Manufacturing employment increased for the 26th successive month in June. Although the rate of job creation remained below the average for the current sequence of growth, it accelerated slightly from May's near two-year low
The increase in staffing levels was broad-based, with capacity expanding at SMEs and large-sized producers and across the consumer, intermediate and investment goods sectors. Part of the increase in employment reflected efforts to clear backlogs of work. Outstanding business subsequently fell at the fastest pace since March 2013.
Average input costs rose for the first time in ten months during June, reflecting companies' reports of higher prices paid for chemicals, oil, plastics and polymers. However, the rate of input cost inflation was only moderate and well below the long-run survey average. Suppliers' delivery times meanwhile lengthened, reflecting vendor capacity shortages and raw material availability issues.
After rising slightly in May, June saw average selling prices reduced for the fifth time in the past six months. Output charges were lowered at SMEs, but raised by large-sized producers. Where a reduction in selling prices was reported, this was generally linked to increased competitive pressures.
Felicity Burch, senior economist at EEF, said: "Today's data reflects continued weakness in demand in the oil and gas sector and a return to subdued demand in Europe after tentative signs of an improvement earlier in the year. However, there are some positive signs about the domestic economy underneath this, with consumer goods performing well while employment in manufacturing continues to expand, suggesting companies are still positive about growth."
Rob Dobson, senior economist at survey compiler Markit, added: "The UK manufacturing sector had a disappointing second quarter overall. Growth trends in output and new orders were the weakest since the opening quarter of 2013, as a strong sterling exchange rate and subdued demand from mainland Europe offset the continued solidity of the domestic market.
"Export trade is also likely to remain a drag on the economy, given the uncertainty surrounding the Greek debt crisis. This makes it difficult to gauge fully any possible knock-on effects for the UK's trade with the euro area particularly in relation to impact from the euro-sterling exchange rate."
