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UK Manufacturing PMI Falls

James Boston
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UK Manufacturing PMI Falls

The Charted Institute of Purchasing and Supply in conjunction with Markit Economics have just published the July Purchasing Managers Index for the UK’s Manufacturing sector. The month’s reading has come in at 55.4, this is in comparison to the 57.5 level experienced in June, the market consensus estimate was for just a slight fall to 57.2 in today’s figure.

Despite Britain being the birthplace of the industrial revolution the manufacturing sector today only accounts for about one tenth of the economy. The recent recovery in the UK however has brought with it a resurgence in British manufacturing. Very strong domestic demand is driving further investment in manufacturing and delivering a more balanced recovery to the UK.

The export engine however has not yet reached it’s potential, part of the reason for this is the strength of the British Pound. But since the UK is not really attempting to compete in the commoditized goods sector, rather it is focused on the high value add markets, there should be a certain resilience to high currency prices.

The market for British finished goods is also changing, with the exception of Brazil the BRIC economies now all occupy spots in the top 10 destinations for exports from the UK. Weak Eurozone demand, falling Chinese growth rates and impending trouble for the Russian economy however will all take their toll on British trade over the remainder of the year, this will in someway be offset by markets in North America and the former colonial countries that are all experiencing strong growth.

The upcoming challenges for the UK’s manufacturing sector are now three fold. Firstly, given the countries status as a high end manufacturer there is a growing shortage of highly skilled workers. Secondly, as the Bank of England prepares to raise interest rates there is a chance of further currency appreciation. Finally, there is the Scottish independence referendum is September, if this is successful it places a question mark around English industry’s access to natural resources, primarily North Sea oil.

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