UK manufacturing growth ticks up in June but still subdued

Growth in the UK manufacturing sector ticked a little higher in June but remained relatively subdued, according to data released on Monday.

The IHS/Markit CIPS manufacturing purchasing managers’ index rose to 54.4 from a downwardly-revised 54.3 in May, a touch ahead of consensus expectations for a reading of 54.0.

May’s figure was revised down from 54.4. A reading above 50 indicates expansion while a reading below signals contraction.

The survey also found that business optimism dropped to a seven-month low this month amid rising concerns about possible trade tariffs, the exchange rate and Brexit uncertainty.

Rob Dobson, director at IHS Markit, said: "The UK manufacturing sector ended the second quarter on a subdued footing. The turnaround in performance since the start the year has been remarkable, with impressive growth rates late last year turning into some of the weakest rates of expansion seen over the past two years in recent months.

"The slowdown in new order growth since earlier in the year has also left manufacturers increasingly reliant on backlogs of work and inventory building to maintain higher output. This is a position that cannot be sustained far beyond the immediate horizon. The trend in demand will need to stage a much firmer rebound if a further slowdown in output growth is to be avoided."

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "The recovery in the manufacturing sector has shifted down another gear as the summer has approached. The quarter-average of the PMI in Q2 is the lowest since Q4 2016. Admittedly, the output balance still is consistent with respectable quarter-on-quarter growth in manufacturing output of about 0.5% in Q2. But solid growth in output is being sustained through reducing work backlogs at the fastest rate since August 2016, as well as inventory building; neither is sustainable for long.

"The rate at which manufacturers are increasing their purchases of raw materials also is slowing, indicating that they expect production growth to slow over the coming months. Note too that manufacturers were their least upbeat about the outlook for output over the next 12 months since last November. A combination of higher oil prices and cautious consumers suggest that the manufacturing sector’s recovery will continue to lose pace in the second half of 2018."