Manufacturing Sector 'Enduring a Real Struggle' Says EY ITEM Club

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Research from multinational professional services firm EY suggests a slowdown in gorwoth in the manufacturing sector for the 3rd quarter of 2015.

The report also stated that the situation is unlikely to turn around in the near-term, with the factors underpinning both trends likely to remain influential as move into the autumn.

Martin Beck, senior economic advisor to the EY ITEM Club, comments: “While the CIPS manufacturing PMI edged down in August, the detail of the survey was slightly more encouraging with production accelerating to a five-month high and new business picking up. However, the bigger picture is one of a sector which is enduring a real struggle, with the PMI consistent with a likely fall in manufacturing output of 0.3% in Q3.

“Once again the survey showed a clear divergence between the relative strength of the domestic economy, particularly in terms of demand for consumer goods, and external weakness. The strength of the pound remains a key constraint, but it was notable that survey respondents also cited weak demand from China as a limiting factor in July. We would expect both factors to continue to supress demand for UK manufactured goods as we move through the autumn.

“The relative strength of the consumer sector was also shown in today’s Money & Credit figures. Mortgage approvals rose from 67,100 in June to 68,800 in July, with net mortgage lending reaching a seven-year high of £2.7bn. A stronger labour market and firmer trends in household incomes are the main drivers of the pickup in activity, giving home owners the means and the confidence to buy, while historically low levels of mortgage interest rates are also likely to be important. Unsecured lending also continued to accelerate in July.

“In our view, these releases are unlikely to make many waves within the MPC. August’s MPC minutes suggested that manufacturers’ struggles with the strong pound are firmly on the Committee’s radar, while there is no evidence of any inflationary pressures building within the sector. Although consumers’ appetite for credit continues to grow, we are a long way away from repeating the debt-fuelled growth seen prior to the financial crisis. But the MPC will be encouraged by the pickup in re-mortgaging, which suggests that households are starting to prepare for when interest rates do eventually start to rise.”

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