Manufacturing PMI ... Nothing to see here

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Conditions seemed to be turning around for UK manufacturing – a sector that had been under the cosh from sluggish global growth, the weak oil price and the severe challenges facing the steel sector. But any positive soundings in the past couple of months have been thrown up in the air by last week’s referendum decision.

Manufacturing PMI at five month high

Today’s perkier PMI follows steady gains in our own Manufacturing Outlook survey last month and the strong gains in official output data in April. All of which imply that, up until June at least, it was looking like the worst of the downturn was now behind us. The better numbers coming out of most of Europe today (France was, again the exception) also suggest that manufacturing activity across the region is faring better on the back of stronger global trends and healthier consumer demand.

 

junepmi 

 

But, it’s probably not worth dwelling too much on the data as that was then and, well, now we simply don’t have the visibility to confidently say that the sector will remain on this path of steady improvement over the rest of this year.

Crystal ball gazing

The immediate reaction that we’ve had from manufacturers over the past week is that it’s simply too soon to say what happens now.

 

There doesn’t appear to have been any significant movements in orders or contracts coming through from customers across many manufacturing sectors. In some cases this is a result of long order books and big backlogs in sectors, such as aerospace. The fall in Sterling is also providing a bit of a boost for some.

However, as political and economic uncertainty has ramped up over the past week, future plans for investment and recruitment, for example, are unclear. This will have implications not just for GDP growth and productivity improvements, but all for demand in some key sectors, such as mechanical equipment and other investment goods. A drop in confidence in the domestic market could also quickly be felt in supply chains feeding into construction activity.

So, as much as it pains economists to admit they simply don’t know, the future – especially in the short term, is nearly impossible to predict and all today’s PMI data is telling us is what we could have won.

Author

Chief Economist

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