A closely watched gauge of USA factory activity fell last month in the wake of the U.K.’s vote to leave the European Union, but continued to signal growth across the American manufacturing sector.
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The Nikkei Markit India Manufacturing Purchasing Managers’ Index (PMI) – a composite indicator of manufacturing performance – rose to 51.8 in July from 51.7 in June.
The result will heap further pressure on the Bank of England to hand the United Kingdom economy a fresh dose of monetary stimulus when it votes on interest rates this Thursday.
The benchmark on Monday drifted to an intraday low after a poor showing of July manufacturing activity data from Markit. The change in the index chimes together with the expectation that the manufacturing sector will pick up in the second half of the year after a weak start in 2016.
Employment fell for a seventh month in July, with firms linking lower staffing to the drop in output and new orders.
Although factory output also expanded at the fastest rate since March and backlog accumulation intensified, businesses refrained from creating jobs. On the UK’s figures, a senior economist at Markit, Rob Dobson said, “The weakening order book trend and upswing in cost inflation point to further near-term pain for manufacturers”.
“On that score, the weak numbers provide powerful arguments for swift policy action to avert the downturn becoming more embedded and help to hopefully play a part in restoring confidence and driving a swift recovery”.
There was some reprieve for the manufacturing industry as the slump in the value of the pound continued to help United Kingdom exports.
“Janet Yellen will be pleased that the manufacturing numbers are holding somewhere close to June’s high watermark, showing that production in the USA is in relatively rude health”, said Dennis de Jong, managing director at UFX.com. Nevertheless, it joins the weak data seen last week from durable goods orders and GDP.
However, it said the boost to exports was “less marked than previously estimated” due to sluggish overseas demand. Markit’s flash estimates published last month had already signaled that business activity was shrinking at its fastest pace since the last recession seven years ago. Only a figure above 50 indicates expansion and this has been the most rapid contraction of United Kingdom manufacturing in three years.
“Without new orders coming through, this downward trajectory is likely to get worse, at least in the short term”.
The report suggests that Britain’s decision to leave the European Union may have a harsher impact on the economy than initially expected.
“But the pressure on economic growth remains, and supportive fiscal and monetary policies must be continued”.
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Banks and housebuilding stocks suffered after the PMI update amid fears that United Kingdom economy growth is grinding to a halt following the Brexit vote. Of the 18 manufacturing industries ISM tracks for its monthly survey, 11 of them including petroleum and coal reported growth last month.
