2nd September 2014

UK and Euro Manufacturing Output Slows

The latest results of influential surveys have revealed that manufacturing growth in the UK and the eurozone have both slumped. According to the Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI) for the regions, the rate of output growth has slowed at a more rapid rate than recently.

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UK and Euro Manufacturing Output Slows

According to the Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) for the regions, the rate of output growth has slowed at a more rapid rate than recently.


UK Lowest for 14 Months

In the UK the PMI results for August showed a drop from 54.8 in July to 52.5. That is the lowest figure for 14 months. However, with a PMI reading above 50 showing growth it still reveals the market is expanding, all be it at a slower rate.

The slower rate was seen at every level though, according to Markit, who said that both the number of new jobs and new orders being seen in the market was weakening. It was still above average however, with senior economist Rob Dobson at Markit saying:

“Sustaining the upturn is still a positive in itself,”

The findings were backed up by another survey however.

According to the results of the study from manufacturing trade body EEF, growth was found to have slowed from July 30 to August 20.

Both Markit and EEF have said that this will affect the bottom line figure for growth through the year, with EEF adjusting its forecast down from 3.5% to 3.3%.


Eurozone Lowest for 13 Months

Many analysts and commentators have said that the slowdown in UK growth is largely a response to the conditions in global markets – with the sluggishness of Europe likely to be particularly influential.

This was a view backed up by the results of manufacturing growth in the eurozone, which posted its slowest rate in 13 months,

The Markit PMI for the region dropped from its July figure of 51.8 to an August reading of 50.7. This is still showing growth, but revealed stalling order numbers as the continuing political situation in Ukraine had an impact.

Markit’s Rob Dobson said:

“Although some growth is better than no growth at all, the braking effect of rising economic and geopolitical uncertainties on manufacturers is becoming more visible,”

The results of the PMI survey come ahead of the European Central Bank (ECB) meeting on Thursday. It is understood that with inflation at 0.3% and a real risk of deflation, the bank’s boss Mario Draghi could start a round of quantitative easing (QE).

Up until now, the eurozone has resisted taking any QE action, despite relative success by such schemes in the UK and the US.


The German and French Problem

Compounding the issue in the eurozone is the performance of the largest markets.

The German market for example slumped to an 11 month PMI low of 51.4. Meanwhile, in France, the PMI slumped to just 46.9, with Dobson saying it is a ‘real concern’.

It is not the only concern though, with the economist continuing to explain:

“Signs that growth impetus waned in the key industrial engine of Germany, and in Spain and the Netherlands too, is also less than reassuring,”

It was not all bad across the eurozone though, with the Republic of Ireland seeing its PMI reading hit its highest point in nearly 15 years, at 57.3.

With the overall results showing that key markets are still generally on the up however, there seems little need for outright panic. With the challenging political environment likely to continue for some time though, how the market and businesses respond in the last two quarters of the year will be closely watched.

In the UK this is certainly the case where, despite the less than assuring results this month, the manufacturing sector is still set to post its best year since 2010.

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