Manufacturing enters Q3 on a solid footing, but economy is set for a softer quarter – EY ITEM Club comments

1 August 2014

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Martin Beck, senior economic advisor to the EY ITEM Club, comments on today’s manufacturing figures:

“The manufacturing sector has entered Q3 on a solid footing. Although this represented the lowest reading for over a year, the PMI still remains above its historical average, and compares well against the Eurozone.

“Evidence of continued expansion in output is consistent with other indicators. But a fall in the export orders suggests that the strength of the pound and the fragile Eurozone recovery are limiting the scope for firms to increase their exports.

“Recent comments by the Bank of England, suggest that the strength of the pound is playing on the minds of the MPC. A continuation of this strength, with the associated impact on inflation and export prospects, reinforces our view that the first hike in interest rates will probably have to wait until next year.

“July’s manufacturing PMI adds to a dip in consumer confidence and signs that the edge may be coming off house price growth. The economy could be set for a somewhat softer quarter than the stellar expansion seen over the last year. But even a more moderate rate of growth means less chance of the economy running into bottlenecks and will aid the sustainability of the expansion.”