UK manufacturing slowdown raises doubts about economic outlook

[LONDON] UK manufacturing slowed more than forecast in June as uncertainty hit demand, raising doubts about the outlook for the economy in the second half, according to IHS Markit.

Its Purchasing Managers Index fell to a three-month low of 54.3 from a downwardly revised 56.3 in May, the company said on Monday in London. While that's below what economists had forecast, it's still above the 50 level that divides expansion from contraction.

The survey adds to evidence that the inconclusive general election and the start of Brexit talks last month are weighing on companies and households. That may strengthen the case for keeping interest rates at a record low after Bank of England officials split in recent weeks over whether to tighten policy in response to rising inflation.

"Increased business uncertainty appears to have led to some delays in placing new contracts," said Rob Dobson, an economist at IHS Markit.

"While the survey data add to signs that the economy is likely to have shown stronger growth in the second quarter, further doubts are raised as to whether this performance can be sustained into the second half of the year."

The rise in factory orders was the weakest in 11 months as growth of new business slowed in both the domestic and export markets, IHS Markit said. The slowdown was broad-based, with weakness across the consumer, intermediate and investment goods industries.

Economists in a Bloomberg News survey had predicted the overall manufacturing index would drop to 56.3 in June from a previously reported 56.7 in May.

Factory-price pressures continued to ease from their highs earlier this year, with input-cost inflation at its lowest in 12 months and output prices charged increasing at their slowest pace since September.

While the pound's drop since the European Union referendum helped to support overseas demand, export orders "remained disappointingly lackluster," Dobson said.

Manufacturing accounts for about a tenth of the British economy. PMI data on services, which make up almost 80 per cent, will be published on Wednesday.

BLOOMBERG