A Further Rise In Manufacturing PMI

In June, the headline manufacturing PMI improved further (to 52.5) in line with the rise in the output and in the new orders indices (respectively to 55 and 54.7). This is good news for United Kingdom as manufacturing production, which declined by 0.2% q/q in Q1, may show a slight improvement in Q2.

Markit/CIPS survey indicates that the headline manufacturing PMI was up from 51.5 in May to 52.5. Above the 50-threshold for the third month in a row, it thus reached its highest level since May 2011.

Indeed the manufacturing output index consolidated the sharp increase of the previous month (to 55 from 54.7 in May), reaching its highest level since April 2011. Moreover, the new orders index, one of the leading indicators of the survey, increased further in June, up from 53.7 in May to 54.7, in line with a sharp increase in new export orders (to 53.2 from 51 in May).

Despite this general improvement, the employment index slightly decreased. However it remained above the 50-threshold (to 50.1 after 50.4 in May) for the second month in row. According to the Markit survey, the output prices index also decreased from 52.8 in May to 49.7 in June. Indeed input prices slightly decreased in June (from 49.8 to 48.8) as pressures on prices may be a little less important in line with the exchange rate stabilisation of the sterling against the euro.

The output index thus reached 53.7 on average in Q2 2013 (up from 50.2 in Q1 2013). This is good news for United Kingdom. Manufacturing production, which declined by 0.2% q/q in Q1, should show a slight improvement in Q2. Wednesday, the release of the CIPS services activity index (at 52.9 in April) should allow having a better view of activity development this spring, but according to data published over the past few months, GDP is likely to increase slightly in Q2 (after +0.3% q/q in Q1). Even if activity remains undermined by uncertainties regarding the resolution of the eurozone crisis and the global growth development, there is little chance that the Bank of England decides to more QE this week.

BY Catherine STEPHAN

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