British manufacturing cools to weakest in year after boom

Staff Writer
Columbus CEO

(c) 2014, Bloomberg News.

LONDON — British manufacturing grew at the slowest pace in a year in July as a cooling in new orders and output ended the first half's "stellar growth spurt," Markit Economics said Friday.

A factory index slipped to 55.4 from a revised 57.2 in June, the London-based data provider said. Economists forecast a reading of 57.2 for July, from a previously reported 57.5 in June, according to the median estimate in a Bloomberg News survey. An index of orders declined to 57.8 from 60.6 and a separate gauge of output also fell. Italian manufacturing grew at its slowest pace in eight months, a separate report from Markit showed. For the euro area as a whole, factory growth was little changed from a previous estimate.

While the report suggests some loss of momentum, the gauge remains higher than the survey average of 51.5 and has showed expansion for 17 months. Other indicators suggest continuing strength, with a report from the Confederation of British Industry showing factory orders at the highest level since 1995.

"Although cooling in July, growth rates for production and new orders remain well above their long-run trends, supporting continued solid job creation," said Rob Dobson, an economist at Markit in London. "The rate of growth remains historically very strong to help contribute to yet another robust expansion of the economy in the third quarter."

Data last month showed gross domestic product rose above its previous 2008 peak in the second quarter. While the strength of the economy has prompted speculation about when the Bank of England will increase its benchmark interest rate from a record low, Deputy Governor Ben Broadbent told Bloomberg News this week that officials anticipate a slowdown toward the end of the year.

Markit's U.K. index Friday is "a little disappointing, but it remains at historically high levels and still points to an acceleration in official manufacturing output growth," said James Knightley, an economist at ING Bank NV in London. "It is possible that concerns over potential interest-rate rises are weighing a little."

Factory payrolls increased at the weakest rate in nine months, even as companies created jobs for a 15th consecutive month, Markit's report showed.

Output prices increased for a 13th month and input costs also continued to rise.

"Increased purchase prices were linked to higher costs for metals, plastics and timber," Markit said. "There were also some reports of suppliers raising their prices. This was partly the result of bottlenecks at vendors."

BOE officials are discussing new economic forecasts before their monthly policy decision on Aug. 7. While Governor Mark Carney has said the time to normalize rates is "edging closer," he's also said there's room for more spare capacity to be eroded before tightening begins.

Investors are betting the benchmark rate, which has been at an all-time low of 0.5 percent for more than five years, will increase 25 basis points by February, according to futures contracts.

Markit's euro-area factory report showed the index at 51.8 in July compared with a prior estimate of 51.9. The gauge for Italy, the bloc's third-largest economy, fell to 51.9, the lowest since November, from 52.6 the previous month. In Spain, Markit's survey showed growth slowing from a 50-month high. The growth index for France was revised higher, while the gauge for Germany, Europe's largest economy, was revised lower.

The data may inform European Central Bank policymakers as they gather for their monthly decision on Aug. 7. Officials have indicated they may refrain from further action for now as they wait to see the effect of an unprecedented package of measures unveiled in June.

In China, manufacturing expanded in July at the fastest pace in more than two years, signaling a pickup in economic growth is strengthening amid government support policies. The Purchasing Managers' Index was at 51.7, the National Bureau of Statistics and China Federation of Logistics and Purchasing said Friday in Beijing, exceeding the median 51.4 estimate in a Bloomberg News survey and up from 51.0 in June.