Momentum in May

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The purchasing managers' index (PMI) compiled by Markit and CIPS came in at 57.0 in May, signalling the thirteenth successive month of improving business conditions in the manufacturing sector. Here are the key points from the survey:

— PMI down marginally to 57, from five-month high of 57.3 in April

— Broad-based rise in consumer, intermediate and investment goods output

— Growth in new orders from domestic and export markets

— Thirteenth successive month of job creation

— Third consecutive monthly fall in input costs

Manufacturing PMI(50 = no change)

Source: Markit/CIPS

Positive signs

The May PMI data indicate that the manufacturing sector is firmly on track to expand for a fifth consecutive quarter in 2014Q2, its best performance in four years. The headline index edged marginally lower last month, but was still the fifth strongest reading in the past three years and far above its long-term average of 51.4. Despite the slight dip, the PMI average for April-May, at 57.2, is higher than the Q1 average of 56.2.

Encouragingly, the latest survey data paint a positive scene of broad-based expansion, not only in terms of rising new orders across the consumer, intermediate and investments goods sub-sectors, but also in an improving export demand picture to complement the robust domestic market. According to Markit, new product launches and firms' efforts to boost market share were key drivers behind a pick-up in new export business. An upturn in export orders would be welcome, as the rebalancing story for the UK economy still requires a significant boost in net trade to support the recent rebound in business investment.

Jobs boost

A thirteenth consecutive month of rising employment was spread across all the main sub-sectors and in companies of all sizes, suggesting that the healthy upward trend in official manufacturing jobs data since the start of 2013—the longest period of employment growth in the sector since the mid-1990s—is set to continue. Manufacturers' improving cashflow position is helping to sustain confidence, supported by strong demand and a further decline in input costs (reflecting in part the relatively subdued trend in global commodity prices).

Overall, as Lee noted in her recent Executive Survey catch-up, manufacturing is on track for a solid year of growth in 2014, more than making up the lost ground over the past two years. But with output still 7.6% below its pre-crisis level of early 2008 there is considerable scope for further catch-up and a need to build on the recent positive trends to sustain growth over the medium term.

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