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April 29, 2017

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UK manufacturing downturn eases sharply in Aug.

LONDON--The downturn in Britain's manufacturing sector eased significantly in August as domestic clients placed more orders, an unexpectedly strong purchasing managers' survey showed on Monday, raising the chances that the country is moving out of recession.

The jump in the Purchasing Managers' Index (PMI) will bolster expectations that the Bank of England will shy away from stepping up its stimulus for the economy on Thursday and stick to its plan to buy 50 billion pounds of gilts by November.

However, the pressure remains on the government to take bolder steps to boost an economy that has not fully recovered the output lost in the wake of the 2008-2009 financial crisis, and has been stuck again in recession since late 2011.

The Markit/CIPS manufacturing PMI jumped to a four-month high of 49.5 in August from a downwardly revised 45.2 in July, the lowest level since May 2009.

The August figure still points to ongoing contraction but easily beats even the most optimistic economist's forecast in a Reuters poll.

The stagnation in new orders was a marked improvement from the slump seen in the prior month, with the orders index jumping to 49.9 from the 41.8 in July — the biggest one-month gain in the survey's history.

"The marked easing in the rate of contraction at UK manufacturers is heartening," said Rob Dobson, economist at survey compiler Markit.

However, the sector remains fragile and faces big headwinds. "Overall demand remains too lacklustre to provide an imminent and sustained recovery, with investment spending still weak and domestic austerity ongoing," Dobson said.

Exports Weak

Manufacturers reported a modest increase in new work from domestic clients, Markit said. "The rate of decline in new export orders also eased sharply, despite weak demand from mainland Europe," the survey compiler added.

The decline in output was centered on the investment goods sector, while consumer goods producers ramped up production.

Highlighting the uphill struggle ahead, a survey by business lobby EEF showed earlier on Monday that Britain's manufacturers faced the toughest trading conditions since the end of the financial crisis in the past three months because the eurozone debt crisis sapped export demand as well as morale at home.

"The weaker global outlook precipitated by the ongoing economic challenges in Europe has clearly hit home," EEF chief economist Lee Hopley said in a statement.

Most economists predict now that gross domestic product will be lower this year than in 2011, and many see only a sluggish recovery next year.

But while weak growth has derailed the government's efforts to balance the budget within five years, the economy has continued to create jobs and unemployment has fallen.

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