June 1, 2018 / 8:37 AM / a year ago

UK factories pick up but still weak beneath surface: Markit

LONDON (Reuters) - Growth among British manufacturers picked up speed in May for the first time in six months, but the improvement masked underlying weakness among the country’s factories, a survey showed on Friday.

Construction cranes are seen on a building site in central London, Britain, July 31, 2017. REUTERS/Hannah McKay/Files

The Markit/CIPS UK Manufacturing Purchasing Managers’ Index suggested that Britain’s economy has not recovered much from a slowdown in early 2018, although manufacturing accounts for only about 10 percent of overall output.

The Bank of England is watching for signs that the near-stagnation of the economy between January and March was temporary and caused by unusually cold weather - rather than the approach of Brexit next year - before it raises interest rates for only the second time in over a decade.

The index rose to 54.4, above the median forecast of 53.5 in a Reuters poll of economists but only partly recovering from a plunge of nearly a full point to 53.9 in April.

“At first glance, the mild acceleration in the rate of output growth and rise in the headline PMI would appear positive,” Rob Dobson, a Markit director, said.

“However, scratch beneath the surface and the rebound in the PMI from April’s 17-month low is far from convincing.”

The fastest growth of 2018 in the index’s output component was driven by the steepest build-up of finished goods inventories in the 26-year history of the Markit survey and a decline in the backlog of work.

Incoming new business grew at its slowest pace in 11 months, hurt by a slowdown in domestic orders.

Job creation was the slowest in 15 months, hit by weakness at companies making consumer goods. They have been hurt by the loss in spending power of many households after a jump in inflation last year, caused by the fall in the value of the pound after the Brexit vote.

Manufacturers faced faster rises in prices for raw materials, which picked up pace for the first time since January, and some inputs were in short supply. But the prices manufacturers charged rose at the slowest pace since August.

“These price and supply headwinds, combined with a further slowdown in new order growth, could jeopardise any further expansion of the manufacturing sector,” Dobson said.

The overall degree of positive sentiment in the sector dipped to a six-month low.

Separate PMIs for the construction industry and the much larger services sector are due on Monday and Tuesday.

Writing by William Schomberg, editing by Larry King

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