Manufacturing PMI and lending data – EY ITEM Club

1 May 2014

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  • Manufacturing off to a strong start in Q2
  • Optimism among businesses suggests momentum should continue
  • But a boom in credit remains notable by its absence

Martin Beck, senior economic adviser to the EY ITEM Club, comments on the manufacturing PMI and lending data released today:

“Having been on a steady downward trend over the last six months, April’s manufacturing PMI backed this pattern, rising to its highest level since November 2013 and showing the third strongest reading in three years. It looks like manufacturing production has got off to a good start to Q2. The survey pointed to a broad-based expansion, with the consumer, intermediate and investment goods sectors all seeing strong growth. Meanwhile, employment in the sector expanded at a rapid rate in April and new orders saw a healthy rate of growth.

“Despite sterling climbing even higher over the last month, April’s survey pointed to an increase in manufacturing export orders. And the strong pound may be providing some offsetting benefits, with average purchase prices paid by manufacturers falling for the second successive month, driven in part by lower import costs.

“With the most recent CBI Industrial Trends Survey finding optimism among businesses at its highest level since 1973, momentum in manufacturing output looks set to continue. All in all, it looks like the sector is set for a bright spring and summer.

“Meanwhile, the latest lending data continues to display few signs that a boom in household borrowing is building. Annual growth in total household borrowing in March picked up slightly, but still remained well below growth in cash GDP. Meanwhile gross mortgage lending fell back on its February levels and mortgage approvals fell for the second successive month. With the recommendations of the Mortgage Market Review coming into force last month, we think that the likelihood of a surge in mortgage borrowing remains modest.

“That said, expansion in consumer credit continues to be more heated, with year-on-year growth in March at a rate last seen in the middle of 2008. But, even here growth is only a fraction of the rates typical in the noughties.”