UK manufacturing PMI out of contraction, GBP remains unimpressed

Data released earlier today showed that UK Markit/CIPS PMI manufacturing index edged higher to 50.1 for May from an upwardly-revised 49.4 in April and was slightly stronger than the expected reading of 49.6. Manufacturing PMI was back into positive territory, out of contraction, however GBP remained unimpressed.

There was a marginal improvement in new orders for the month with production broadly unchanged, but export orders declined for a fifth successive month.There was notable weakness in the investment-goods sector and there were strong job cuts in this sector. Overall employment also declined for the fifth successive month, although at a slower pace.

The index overall suggests that manufacturing will contract more than 0.5% for the second quarter on the ONS methodology and will undermine overall GDP data with the economy remaining dependent on the services sector. As the manufacturing sector accounts for only around 10% of UK economic activity, the UK’s near-term growth outlook hinges more crucially on developments in the dominant services sector and Friday’s PMI readings will provide an update.

"Today’s mild uptick leaves the headline only a sliver above the 50 ‘no change’ mark and still below the long-term average of 51.5. As such, it continues to suggest a high hurdle to growth in Q2 in the manufacturing sector, which on official data eked out a 0.3% gain in 2016 Q1, leaving its output 1.5% lower than a year ago." notes Lloyd's Bank in a report.

GBP remained unimpressed, GBP/USD lower at 1.4438, while EUR/GBP extends upside to trade at 0.7739 at 1200 GMT.