UK: Manufacturing boosted by strong foreign demand - ING

The UK manufacturing sector continues to benefit from an improving global outlook, but wider domestic economic headwinds mean a Bank of England rate hike is unlikely this year, according to James Smith, Economist at ING.

Key Quotes

“The latest UK manufacturing PMI has come in comfortably above consensus at 55.1, as the second-strongest rise in foreign demand in the series history lifts new orders. It appears that a combination of the weaker pound and increasing global growth optimism is boosting sentiment amongst firms. It's also possible that we are seeing a bit of a recovery as the dust settles on the UK election result.”

“It’s worth noting that the overall strength we've seen in the PMI this year is yet to translate into a pick-up in the official manufacturing data. One possible explanation for this is that the impact of the weaker pound has been less pronounced than it might have been 10-20 years ago. The increasingly interconnected nature of global supply chains means exchange rate fluctuations are less of a key determinant of competitiveness.”

“But it’s also important to remember that the manufacturing sector is a relatively small part of the UK economy. The much larger service sector is beginning to slow as the effect of Brexit uncertainty and slower consumer hits.”

“Wider economic data, from the weak 2Q growth reading to the latest dip in consumer confidence, suggests that the economy is losing speed. For that reason, we think the Bank of England is unlikely to hike rates this year.”