British manufacturing barely grows in May as EU referendum approaches: PMI

[LONDON] British manufacturing activity barely grew last month, adding to signs that the economy is slowing in the run-up to a referendum on European Union membership, a survey showed on Wednesday.

The Markit/CIPS manufacturing Purchasing Managers' Index (PMI) rose more than expected to 50.1 in May from April's slightly upwardly revised 49.4, the lowest reading since early 2013. Economists in a Reuters poll expected a 49.6 figure.

But the index was only a fraction above the 50 mark which separates growth from contraction, and below levels seen at the start of 2016. Official figures show manufacturing failed to contribute to overall growth throughout 2015 and early 2016.

"The manufacturing sector looks likely to act as an increased drag on the economy in the second quarter," Rob Dobson, senior economist at survey compilers Markit, said.

"There are also signs that increased client uncertainty resulting from slower growth and the forthcoming EU referendum are weighing on investment spending and business decision-making in general."

Britain's economy slowed in the first three months of the year, and recent data showed business investment fell in annual terms for the first time in three years as uncertainty over the June 23 referendum weighed on sentiment.

Many economists expect the economy to weaken further in the second quarter. The Bank of England has said a vote to leave the EU could even tip the economy into recession.

The Markit survey showed that the investment goods industry struggled in May, with production falling at the fastest pace in three and a half years.

But there was somewhat better news on overall new orders, which rose in May.

Input prices rose at the fastest rate since February 2014, due to a weaker exchange rate and higher oil and metals prices. An end may be in sight for near-zero inflation as firms said they were passing some of this rise on to consumers.

Annual consumer price inflation stands at 0.3 per cent, and last month the BoE forecast it would take two years before it returned to target, assuming Britain voted to stay in the EU.

REUTERS