Weakest since November, though still robust

The manufacturing PMI fell back from 56.9 in July to 54.3 in August: the weakest since November 2009 and notably below market expectations of 57.0. Moreover, there was widespread weakening within the survey. Both the output and new orders balances fell back to their lowest since autumn 2009, while backlogs of work fell and stocks rose. Although export orders nudged up over the month and are at around average levels, they have fallen back notably since the Spring.

The manufacturing PMI nevertheless remains at relatively healthy levels, well above its pre-recession average of 51. And this PMI survey does not fit well with the recent BoE's agents or CBI surveys, both of which reported continued strength in the manufacturing sector. So overall, surveys suggest that manufacturing activity remains firm, but with mixed evidence on whether there has been a slowing recently. Perhaps the most uniformity is in the employment balances, which remain very strong.

Official data has shown manufacturing output recovering strongly over the last few months, after a circa 15% fall from early-08 to mid-09. While this survey poses risks, we nevertheless expect that recovery to continue going forwards, aided by the weakness of sterling. Activity in the services sector is somewhat weaker, with official data showing growth easing of late and the services PMI at below-average levels. That, along with growth in the construction sector falling back after a dramatic 8.5% QoQ rise in Q2, is expected to drive a slowing in GDP growth from the rapid 1.2% pace in Q2 to around 0.3% in Q3.

source:

Research report