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UK . UK Economy

UK Manufacturing PMI returns to growth

On June 24, 2020 by Thomas Belayneh

IHS Markit’s manufacturing PMI released yesterday showed growth in manufacturing activity on the prior month for the first time since the pandemic began. The reading came in at 50.1 indicating a very slight expansion, but nevertheless marked improvement on May’s dire reading of 40.7.

The manufacturing output index came in even higher at 50.8, which broke the three-month bad spell below the ‘no-change’ threshold of 50. Partial reopening of manufacturing plants in conjunction with higher volumes led to this greatly improved figure on the prior month’s reading of 35.

The better figures were widely expected, as economists and investors expected there to be a boost from the loosening of lockdown restrictions. However, the 50.1 score was still a surprise to many as they came very surprisingly ahead of expectations for 45.

The headline figure did mask some distressing underlying trends, however, with total new orders continuing to decline in June, as managers cited lack of new sales to replace recently completed contracts. This raises longer term concerns of the viability of manufacturing businesses once the short-term backlogs have cleared.

Furthermore, key export sectors such as aviation and automotive reported particularly weak demand.

This news came as Swiss aviation services group, Swissport, announced today that they would cut 4,500 jobs in response to a fall in demand for new engines and associated maintenance. This affirms earlier moves by the UK’s engineering behemoth, Rolls Royce, to cut costs by announcing up to 9,000 in job losses in its aerospace division in the face of expectations for prolonged weak demand for new aircraft.

The UK Services PMI print came in at 47 meaning a fall in services activity versus May, although it must be noted this report smashed expectations for 40. The survey of services businesses in the UK indicated that one third saw falling activity on the prior month, whilst just over a quarter reported an expansion. This compares to last month’s print of 29 in which over half of respondents reported a fall in activity and just 13% saw a rise.

The government has announced that the hospitality sector can reopen from 4th July, so economists expect the drag on this month’s report from the closures of hotels, restaurants and the like will reverse and take July’s services PMI back above 50.

Tags: UK economic growth, UK Economy, UK Manufacturing PMI, UK PMI, UK Services PMI

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