UK manufacturing PMI beats expectations, but remains weak - ING

James Smith, Economist at ING, suggests that although better than expected, today's UK manufacturing PMI is still consistent with weak growth in the sector, most likely related to uncertainty surrounding the forthcoming EU referendum.

Key Quotes

“May’s Markit/CIPS manufacturing PMI came in a touch better than expected (50.1 vs 49.6 consensus) and above last month’s unexpectedly low reading of 49.4 (revised upwards). However, we would note that this figure is still low relative to where it was at the start of the year (which had already been depressed by weak external demand and sterling strength).

Indeed, as this is only marginally above the positive/negative growth threshold (50), the reading is barely consistent with growth in the sector. As Markit note in their press release, this data is further evidence that businesses are holding off on hiring/investment decisions prior to the referendum on EU membership, scheduled for 23rd June. Any sub-consensus reading from Friday’s services PMI would add additional weight to this argument.

With this in mind, we expect growth in the second quarter to slow to around 0.25% QoQ, lower than the 0.4% recorded in the first quarter and would be the slowest rate of GDP growth since the end of 2012. If the UK votes to remain in the EU, we expect activity to rebound, although this may not be felt until 4Q as it will take some time for corporates to form and implement fresh hiring/investment plans. Conversely (if the UK leaves), the economy may see a more prolonged dip in activity, which could prompt the BoE to cut rates to shore up confidence in the near-term.”