The PMI rose to 54.4 in May – up slightly from April’s 17-month low of 53.9 – and above the neutral mark.
Markit says that the improved trend signalled by the PMI masked several areas of potential concern.
Findings show that although growth of production accelerated, this was mainly achieved through the steepest build-up of finished goods inventories in the 26-year survey history and a sharp reduction in backlogs of work.
Growth of incoming new business remained solid, but the pace of expansion eased to an 11 month low.
Additional findings show that the pace of job creation in the manufacturing sector also lost momentum in May. Employment rose only marginally, with the pace of increase the lowest in 15 months. UK manufacturers also faced rising cost inflation and supply-chain pressures during May, while maintaining sufficient pricing power to pass on part of the increase in costs.
Says IHS Markit director Rob Dobson: “At first glance, the mild acceleration in the rate of output growth and rise in the headline PMI would appear positive outcomes given the backdrop of the slowdown seen in manufacturing since the turn of the year. However, scratch beneath the surface and the rebound in the PMI from April’s 17-month low is far from convincing.
“A slowdown in new order inflows meant the expansion in production was achieved only by firms working through their backlogs of work. Weaker than expected sales meanwhile led to the largest rise in unsold stock in the survey’s 26-year history. This suggests that manufacturers have yet to fully adjust their production to the weakening trend in new business growth and there will need to be a rapid improvement in demand if output volumes are to be sustained in the coming months.”
Dave Atkinson, UK head of manufacturing at Lloyds Bank Commercial Banking, adds: “Despite a downbeat PMI, manufacturing remains the best-performing component of the wider UK economy. It is the sector whose fortunes are most closely tied to global economic growth, which is holding up well and insulates exporting manufacturers from the peaks and troughs of an uncertain UK economy.
“It is far from plain sailing, though, and there is undoubtedly some weakness in the sector. In recent weeks a series of headwinds has challenged the industry. These include the spectre of an interest rate rise later in the year – which could inhibit investment – currency fluctuations and fears of potential trade wars between key exporting markets. In an environment of volatility, firms are being vigilant and spreading risk wherever they can, for example by selling more of their goods abroad.”
Mike Rigby, head of manufacturing at Barclays, says: “As welcome as any uptick in manufacturing output growth is, today’s figures do reveal a slowdown in new business and inflationary pressure beginning to raise its head again. Such data, along with other current performance indicators, will give the Bank of England more food for thought as it ponders the timing of its next base rate move. What manufacturers could really do with now is some degree of clarity over the future relationship with the EU as the continuing uncertainty over Brexit negotiations can’t be helping them with their investment intentions. For now, the sector needs to remain flexible in its planning as it negotiates the uncertain market conditions.”
