UK manufacturing rebounds in May

7 July 2011 Last updated at 11:22 GMT Manufacturing has been one of the stronger sectors of the UK economy in recent months UK manufacturing output jumped by the largest amount in a year in May following a sharp drop in April.

The Office for National Statistics (ONS) said manufacturing output rose 1.8% in May, following a 1.6% drop in April when output was affected by the royal wedding public holiday.

However, the wider measure of industrial production rose by 0.9% in May, which was smaller than expected.

Analysts said the figures suggested the economic recovery remained weak.

Growth forecast

Manufacturing output in April was hit by both the large number of public holidays in the month, and by some firms being affected by supply problems stemming from the disruption caused by March's earthquake and tsunami in Japan.

The ONS said that the supply problems from Japan had diminished in May, contributing to the rebound.

However, May's increase in the industrial production measure - which includes utilities, and oil and gas extraction - failed to offset the 1.7% fall recorded in April.

"Even a decent rebound in June would probably leave industrial production down quite sharply in Q2 as a whole compared to Q1 and therefore dragging on GDP growth," said Vicky Redwood at Capital Economics.

"The survey evidence has given a pretty consistent picture of an underlying slowdown in demand for UK manufacturers' products both at home and overseas. Accordingly, this slowdown in the industrial recovery looks like it might continue."

Last week, the manufacturing purchasing managers' index for June - compiled by research firm Markit - indicated that growth in the sector had slowed.

However, other analysts were more optimistic.

"Manufacturing is not as structurally soft as some people had feared," said David Page at Lloyds.

"We think it will continue to be the cornerstone for an economic recovery over the next few quarters."

The Bank of England kept UK interest rates at the record low of 0.5% on Thursday, as expected.

Analysts do not expect any increase in UK rates until the final quarter of this year at the earliest, with many not expecting the Bank to make a move until 2012.

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China's manufacturing slows down

1 July 2011 Last updated at 03:58 GMT The manufacturing sector been one of the biggest drivers of growth in the Chinese economy China's manufacturing sector expanded at its slowest pace in 28 months following government policies to prevent the economy from overheating, according to an official survey.

China's purchasing manager's index (PMI) fell to 50.9 in June from 52 in the previous month.

The PMI is a key an indicator of conditions in the sector, which is a big contributor to China's growth.

China is the world's second-largest economy.

Even though the figure remained above the threshold level of 50, indicating expansion in the sector, the drop from the previous month indicates that growth is slowing.

Beijing has been trying to slow down its credit-fuelled growth in an attempt to prevent asset prices from overheating.

Analysts said the government's policies are starting to hurt the manufacturing sector.

"It think the primary reason is monetary tightening and a reduction of credit," said Sitao Xu of the Economist Intelligence Unit in Beijing.

"Both central bank and the government are taking a hawkish stance to prohibit high credit growth."

'Synchronised slowdown' Continue reading the main story

What the government is trying to do is prevent the economy from overheating ”

End Quote Sitao Xu Economist Intelligence Unit While internal policies are curbing growth in the sector, analysts said that external factors are also playing a key role.

"The other reason is the synchronised slowdown in developed countries," Mr Sitao said.

The recovery in the US has not been as fast as expected, hence demand from the world's biggest economy has been sluggish, he said.

He added that the debt crisis in European countries had also affected demand for Chinese goods from the region.

However, the overall health of the Chinese economy remained robust, despite the slowdown in manufacturing, he said.

"I don't think it's the end of the world, we are not seeing a hard landing or a recession," he said.

"What the government is trying to do is prevent the economy from overheating."

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UK manufacturing growth 'stalls'

1 July 2011 Last updated at 10:26 GMT The slowdown in global growth is hitting orders for UK goods UK manufacturing sector growth fell to its lowest rate for 21 months in June as new orders declined, a survey says.

The Markit/Cips manufacturing purchasing managers' index (PMI) for June fell to 51.3, down from May's downwardly revised measure of 52.0. A figure above 50 indicates expansion.

Markit said that growth was "stalling", with weak domestic demand and the recent boost to exports now fading.

However, there were signs that inflationary pressures had eased.

"The manufacturing sector continued to slip closer to stagnation in June," said Rob Dobson, senior economist at Markit.

"The data will call into question the sector's ability to play a major role in delivering a robust and sustainable economic recovery."

Global demand

The rate at which companies were hiring staff slowed, and new orders fell for the second month in a row, Markit found.

However, there was also a sharp fall in the inflation rate for goods that manufacturers buy.

"Input price and supply-chain pressures eased noticeably in June, which will... add weight to the Bank of England's monetary belief that the current spike in inflationary pressures will prove transitory," said Mr Dobson.

The EEF manufacturing body cautioned against overplaying the slowdown in the overall PMI figure.

"Behind the headline figure, the detail shows production, export orders and employment all still edging up, albeit at a more subdued pace than earlier in the year," said Lee Hopley, the EEF's chief economist.

"However, with spending cuts now kicking in, it is clear that any support to growth from the domestic market is likely to be minimal."

Ms Hopley added that this lack of domestic demand meant firms were "exposed to events in the global economy where persistent weakening of activity indicators across Europe and Asia would start to raise alarm bells about the UK's prospects".

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'Slump' in eurozone manufacturing

1 July 2011 Last updated at 10:36 GMT The figures showed weakness across the board Growth in the eurozone's manufacturing sector lost steam in June as both exports and domestic demand slowed, falling to an 18-month low, a key survey has shown.

Markit's Manufacturing Purchasing Managers' Index (PMI) fell to 52.0 last month from 54.6 in May, its lowest reading since December 2009.

Any reading above 50 indicates growth.

Separate figures for May showed eurozone unemployment stable at 9.9%.

"Increasing numbers of countries are showing signs of sliding back into recession," Markit said.

Italy's manufacturing sector shrank for the first time in 20 months, while Spain's contracted for the second month in a row.

Growth in the German and French sectors slowed considerably, while the UK's manufacturing expansion fell to a 21-month low.

Gilles Moec, senior European economist at Deutsche Bank, said the data reflected two main factors: inflation hampering consumer demand and the end of stimulus measures in a number of regions, including the US.

"The weakness is no longer simply in the peripherals, it's now moving to Italy for instance," he told the BBC.

"This is painting a different picture from the one we had a few weeks ago."

Unemployment

The stable unemployment figures for May were widely expected by economists.

The European statistics agency, Eurostat, said 15.51 million people were out of work in May - an increase of 16,000 on the previous month.

However, the unemployment total is far lower than the same month a year ago, down by 551,000.

Unemployment was highest in Spain at 21% with joblessness among under 25's running at 44%.

Monthly figures for Greece were not available.

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Manufacturing in sharp April drop

10 June 2011 Last updated at 12:30 GMT Thousands of people lined the streets on the day of the royal wedding, an extra bank holiday on 29 April UK manufacturing saw its biggest monthly drop for almost two and a half years in April, figures show, as the royal wedding bank holiday and the Japanese tsunami hit production.

Manufacturing output fell by 1.5% between March and April, the Office for National Statistics (ONS) said.

The ONS compared the month with June 2002, the month of the Queen's Golden Jubilee, when manufacturing fell 5.4%.

Economists played down the significance of the data, saying it was distorted.

Manufacturing ouput was up 1.3% on April last year.

'Overstated'

The ONS said April 2011 was an "unusual" month for a number of reasons, namely the special bank holiday created for the royal wedding, the royal wedding itself and the effects of the Japanese tsunami.

It said it had also heard from a number of car manufacturers who said that "the after-effects of the tsunami in Japan reduced production levels in April 2011, due to a lack of parts".

Peter Dixon, economist at Commerzbank, said he would not take the figures at face value.

"There is weakness in the manufacturing sector, that's clear," he said. "But I think this figure overstates it and you wouldn't want to pin too many assumptions on one number.

"My guess is that part of this will be recouped in subsequent months. It's very much reminiscent of what happened in 2002 following the Golden Jubilee celebrations. We had some terrible numbers... but thereafter we got something of a rally."

In June 2002, an extra bank holiday was created for the Golden Jubilee and the May bank holiday was also moved to the start of June.

The wider index of production, which includes sectors such as mining and energy supply, fell 1.7% on the month and 1.2% on the year.

The ONS also said that the warm weather had an impact on the energy sector.

April 2011 was the warmest April on record, and reduced demand led to electricity supply ouput falling 4.3% from March and gas supply output falling 11.2% on the month.

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