- April's manufacturing Purchasing Managers’ Index (PMI) fell slightly, as new orders declined, driving a further fall in output. But businesses remained upbeat about the future and the EY ITEM Club expects fortunes to improve from H2 2023, when lower inflation is likely to boost household and business spending power.
- The S&P Global/CIPS survey pointed to a further easing in cost and output price inflation in the goods sector. But further evidence of inflation persistence elsewhere in the economy means the Monetary Policy Committee (MPC) is still likely to raise Bank Rate by another 25bps at its May meeting.
Martin Beck, chief economic advisor to the EY ITEM Club, says: “The manufacturing PMI fell slightly to 47.8 in April from 47.9 in March, leaving it in sub-50 contractionary territory for the ninth consecutive month. The decline in activity was broad-based, with all five sub-indices signalling a weaker manufacturing environment, although the improvement in vendor lead times was likely partly due to easing supply chain disruption.
“Manufacturers reported a decline in new orders, with respondents suggesting that a sustained squeeze on corporate budgets was driving efforts to cut costs and destock, weakening demand for goods. But on the plus side, businesses were upbeat about future prospects. Business optimism rose to a 14-month high, and the expectation of better times ahead meant that employment fell at the slowest pace in seven months. The EY ITEM Club expects manufacturers’ fortunes to improve in H2 2023, when lower inflation and energy bills will likely support an improvement in households’ and businesses’ spending power.
“On that front, April's survey offered some good news. Input cost inflation continued to ease as supply-chain conditions improved. There were also some indications that softer production costs are now being passed onto customers, with output price inflation slowing again. While weaker activity and easing inflationary pressures in the manufacturing sector represent a step in the right direction, the MPC will likely be more focused on further evidence of inflation persistence elsewhere in the economy. As a result, the EY ITEM Club expects the MPC to raise Bank Rate by 25bps at its May meeting.”