UK manufacturing contracts slightly

FMCG SUPPLIER NEWS

Fin24/Reuters - May 6th, 08:00

London - British manufacturing contracted by the narrowest of margins in April, and much less than expected, the first major set of data for the second quarter of the year showed on Wednesday. 

The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) rose to 49.8 in April from an upwardly revised 48.6 in March, putting the sector within a whisker of the 50 line that separates growth from contraction.

Economists had expected a much weaker reading of 48.5.

Manufacturing output fell 0.3% in the first quarter while the economy grew 0.3%, the preliminary official estimate of Britain's gross domestic product in the January-March period showed.

"It is welcome to see the sector showing signs of stabilising in April... The sector should at least be less of a drag on broader GDP growth in the second quarter," said Rob Dobson, senior economist at Markit and author of the survey.

He added that a strengthening in manufacturing would also boost other parts of the economy, such as the services.

Manufacturing accounts for 10.5% of UK economy, according to the latest GDP release.

April's improvement in factory activity was helped by the first expansion in new orders since January, with the related sub-index climbing to 50.6 from March's 49.3.

New export orders rose for the first time in more than a year and at the fastest pace since July 2011 on the back of increased sales to North America, the Middle East, Latin America and Australia. But demand from the eurozone remained sluggish.

There was marginal growth in output led by the production of consumer items and investment goods such as factory equipment.

There was also good news on inflation, with manufacturers' selling prices rising at the slowest pace since November while lower commodity and energy prices contributed to the first dip in their input costs since August.

"This provides headroom for the Bank of England's MPC (Monetary Policy Committee) to extend its accommodative policy stance if GDP growth fails to gain traction in the coming months," Dobson said.

If the central bank were to announce more asset purchases this year, it would most likely do so either next week when it updates its quarterly economic forecasts or after its new governor Mark Carney takes over in July.

On a gloomier note, factories shed jobs for the third straight month in April.