U.K. manufacturing PMI index falls further in June

The U.K. manufacturing PMI index dropped in June. The PMI index fell to 48 from May’s 49.4 as the sector continued to feel the after effects of the stockpiling that supported activity in the first quarter. The fall in June follows the 3.7 point fall in May to leave the headline PMI index well below the 50 level which separates growth from contraction, in line with the view that the sector contracted in the second quarter.

Delving into details, nearly all of the 1.4 point fall in the headline index was accounted for by further falls in new orders and output, which both recorded weaker outturns than those seen in the immediate aftermath of the EU referendum result. The fall in new orders continued to show signs of cooling external backdrop, with new export orders staying soft.

Nevertheless, the fall in new orders component below 50 also implies that the flow of domestic orders deteriorated in June, noted Lloyds Bank in a research report. IHS Markit stated that manufacturers reported this as being partially reflective of clients running down their own stocks that had been built up in the first quarter ahead of previous Brexit deadlines.

In the absence of a rise in final demand, the prospect for manufacturing activity rest heavily on companies’ perception of the Brexit outlook. A resurgence in Brexit-related anxiety might yet see companies once again step up their preparations, which might give a further temporary boost to the sector. Nevertheless, from a wider perspective, a stronger rebound might most likely require greater certainty in the longer-term outlook.

“With the manufacturing sector accounting for ~10 percent of UK GDP, the focus in terms of the wider economy now shifts to the construction and services PMI releases in the coming days. While we expect modest pick-ups in both, overall the surveys are expected to point to weaker economic growth in Q2 compared to Q1’s 0.5 percent rise”, added Lloyds Bank.

At 14:00 GMT the FxWirePro's Hourly Strength Index of United Kingdom was neutral at 29.3138 while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 73.2295 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex