Xinhua, London :
The manufacturing Purchasing Managers’ Index (PMI) for July released Friday was the first data release of third quarter activity in the British economy.
Despite a surprising and significant fall in the figures, it showed that growth continued above trend in the sector.
Although the UK’s manufacturing sector is small, around 10 percent of GDP, it accounts for about half of exports and for 70 percent of research and development spending, so its ability to maintain the outstanding growth seen in the past year-with the PMI readings reaching historically high levels in the sector- has a wider significance.
Although the PMI reading took an unexpected fall of 1.8 points from 57.2 to 55.4, the July reading still indicates strong expansion and is also firmly above trend growth, and continues the growth trend into its 17th month.
The exports and new orders components of the survey showed continued growth, but at a lower rate, and the jobs component also continued to grow but it too has slowed. A slight slowing in exports is likely down to the strength of sterling, currently 1 pound equals 1.68 U.S. dollars.
Business is not concerned, with the chief economist of the industry representative group EEF, Lee Hopley, commenting ?the lower reading than previously should not set off any alarm bells as the indicator is still consistent with a decent pace of growth across the sector and continued prospects for more job creation.
The easing back in activity matches a similar fall in sentiment among consumers, revealed in the GfK consumer survey earlier this week, indicating that the strong pace of growth is falling back a little.
With the Bank of England (BOE) predicting 3.4 percent growth this year and 2.9 percent next year, it’s clear that policymakers are expecting an easing back. However both these predictions continue the above-trend momentum seen for the past year.
The BOE will certainly not raise the Bank Rate from its historical low of 0.5 percent at its August meeting, and the manufacturing PMI figures will give support to those on the Monetary Policy Committee (MPC) who want to hold back until 2015 for the first rate rise in over five years.
Focus will now move to next week’s announcement of the service sector PMIs, covering over 75 percent of the economy, which will give a strong indication of what the second half growth prospects are.
