- Encouraging news for third quarter growth prospects as the purchasing managers reported the manufacturing sector achieving its strongest expansion for 16 months in July. The manufacturing PMI rose to 53.3 in July (revised down slightly from the ‘flash’ reading of 53.6) from 50.1 in June, 40.7 in May and a record low of 32.6 in April
- The manufacturing sector reportedly benefitted from the progressive easing of lockdown restrictions allowing them to raise or re-start production
- Output expanded at the fastest rate since November 2017. This was led by the intermediate and consumer goods sectors. There was also a first rise in 15 months in investment goods output, although it lagged behind the other sectors
- Further encouraging news saw new orders grow for the first time in five months due to improved domestic demand, while confidence in future output improved to the highest level since March 2018
- A continued fall in manufacturing jobs reported by the purchasing managers in July may prompt the Chancellor to consider further steps to support the labour market in the Autumn Budget, following the measures recently announced in the Summer Statement
- The July manufacturing purchasing managers’ survey bolsters hope that the economy will return to clear growth in the third quarter with expansion around 12% quarter-on-quarter as it benefits from reduced lockdown restrictions. This assumes that there are no further restrictions put in place. It is likely that the economy contracted around 20% quarter-on-quarter in the second quarter
- The EY ITEM Club suspects growth is likely to slow in the fourth quarter as unemployment rises. The EY ITEM Club expects GDP to contract 11.5% over 2020
- The EY ITEM Club sees GDP growth at 6.5% in 2021 as the recovery is limited by continued consumer caution, higher unemployment and only slowly recovering business investment
Howard Archer, chief economic advisor to the EY ITEM Club, says:
“The purchasing managers survey pointed to manufacturing expansion accelerating to a 16-month high in July, after the sector eked out marginal growth in June for the first time since February (although hard data from the ONS show that manufacturing output grew 8.4% month-on-month in May after falling 24.4% in April).
“Specifically, the PMI rose to 53.3 in July (revised down slightly from the ‘flash’ reading of 53.6) from 50.1 in June, 40.7 in May and a record low of 32.6 in April. It had previously fallen to April’s low from 48.0 in March and 51.7 in February, which had indicated the first expansion since April 2019.
“July’s reading of 53.3 took the PMI clearly above the 50.0 level, which indicates unchanged activity.”
Output at 32-month high in July; new business expanded for first time in five months
Howard Archer continues: “Output grew at the fastest rate in July since November 2017 reflecting sustained production after stoppages during the lockdown.
“The improvement in output was led by the intermediate and consumer goods sectors. There was also a first rise in 15 months in investment goods output although it lagged behind the other sectors.
“New business rose for the first time in five months, with improvements across the intermediate, consumer and investment goods sectors. Domestic demand led the way. However, export orders fell for a ninth month running despite improving to a five-month high – there were reports of new order inflows starting to pick-up in several markets, including parts of Europe, the US and Asia.”
“Confidence in the sector rose to the highest level since March 2018.
“Manufacturing jobs continued to fall in July, even though the rate of decline was the slowest since February. This may prompt the Chancellor to take further steps to support the labour market in the Autumn Budget.”
Howard Archer adds: “Input prices rose at the fastest rate in just over a year. Output prices rose at a reduced pace so manufacturers’ margins were squeezed.”