UK manufacturing PMI falls in August as strong pound and uncertainty in China take their toll

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Manufacturing activity in the UK dipped unexpectedly last month, figures published today showed – suggesting uncertainty about China may have spread.

Markit's purchasing managers' index (PMI) for the sector fell to 51.1 in August, down from 51.9 in July – and considerably below the 52 expected. Any figure above 50 denotes a contraction in the sector. 

The figure is "well below the average for the current near two-and-a-half year sequence" of 54.2, said Markit.

The company suggested the strong pound, weak sales to the Eurozone and the slowdown in China all had an effect on British manufacturers.

"“Export order volumes continue to disappoint, with the sterling exchange rate, weak sales growth to the eurozone and the slowdown in China all having an impact," said Rob Dobson, Markit's senior economist.

"Given that China makes up only a small proportion of UK exports, the direct impact of a slowing in that nation is likely to be minimal. However, it is too early to say what the indirect impact may be if there is any knock on effect for broader global economic growth."

"Manufacturers will also be hoping that the pick-up in growth in the second quarter and a relatively healthy looking outlook will underpin business investment, thereby lifting demand for capital goods," added Howard Archer, chief UK and European economist at IHS.
 
"The underlying fundamentals for business investment seem decent overall, including improved margins (helped by very low oil and commodity prices), decent profitability, companies’ generally healthy cash positions, tax breaks, low interest rates and easier lending conditions. There should be a growing need for companies to invest to add capacity over the coming months, while higher earnings growth may well also encourage increased investment aimed at saving labour."