The manufacturing sector continues to expand at a “blistering pace”, said Rob Dobson of Markit. The purchasing managers’ index (PMI) tracking the sector stayed at 58 in May (a reading above 50 indicates that activity is rising), a 15-year high. Industry remains a bright spot for Britain’s economy, with other recent data far less robust. A CBI survey of the services sector suggested that activity was faltering. Meanwhile, the CBI’s retail figures for May, along with a slide in consumer confidence, were disappointing.
What the commentators said
Solid demand from domestic customers and strong exports, due to the weak pound, have bolstered the manufacturing sector. But now “headwinds are building”, said Alan Clarke of BNP Paribas. The boost from sterling “is probably fading” and the turmoil in Europe, our biggest trading partner, hardly bodes well for export sales. Furthermore, the strong growth in the sector has a negative side-effect. Output prices are near a two-year high, another piece of “disappointingly high inflation news”, said Howard Archer of IHS Global Insight.
Even with industry in good health, however, the bigger picture is that at around 12% of GDP, it can’t spearhead a robust rebound on its own, said Sean O’Grady in The Independent. The main problem is that hundreds of thousands of jobs will go in the next few years as the public sector is reined back, undermining demand across the economy. “Nor have the banks returned to normal patterns of lending to business.”
Indeed, lending to companies declined again in April, said Capital Economics. And the weak May retail figures suggest that consumers are “starting to buckle under the weight of a heavy debt burden, falling spending power and the coming fiscal squeeze”. So provided we avoid a double-dip, the stage is set, at best, for “a prolonged period of muted growth”, said Neil Woodford of Invesco Perpetual.