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UK Manufacturing Slows to 17-Month Low

May 1, 2018
Business optimism also dipped to a five-month low due to concerns about Brexit, trade barriers and the overall economic climate.

U.K. manufacturing slowed more than predicted in April, adding to signs that the economy’s poor first-quarter performance could persist.

IHS Markit said its monthly Purchasing Managers Index was at 53.9, from a downwardly revised 54.9 in March.

A 17-month low, it was worse than economists had forecast. The figures are likely to further damp the possibility of the Bank of England raising borrowing costs on May 10 and sent the pound lower on Nay 1.

An interest-rate hike this month was seen as a done deal until recently. Investors, who at one stage were assigning a more than 90% chance to such a move, have slashed those odds to about 20% after weaker-than-expected inflation, cautious comments from Governor Mark Carney, and dismal growth figures for the first quarter of the year, partly due to snow that coated the country in March.

“While adverse weather was partly to blame in February and March, there are no excuses for April’s disappointing performance,” said Rob Dobson, director at IHS Markit. “The chances of a near-term hike in interest rates by the Bank of England look increasingly remote.”

Other PMIs to be published this week, including for construction and the dominant services sector, will set the backdrop for the Monetary Policy Committee ahead of their decision next week.

“My immediate reaction to that is slightly worrying because if it was weather related we should be getting some stabilization,” Jim O’Neill, a former chairman of Goldman Sachs Asset Management and the next chair of the Chatham House think tank, said in a Bloomberg TV interview on May 1. “If I were an MPC voting member and had been thinking about a hike, I might be backing off a bit.”

Input-price inflation eased to a nine-month low, though it remained elevated, Markit said. Growth in new business orders eased to the weakest level in 10 months, with the slowdown particularly marked in consumer goods.

The downbeat trend will probably continue, Dobson said, with firms unlikely to boost output amid weak demand and rising stocks of unsold goods. Business optimism also dipped to a five- month low due to concerns about Brexit, trade barriers and the overall economic climate.

By Jill Ward and David Goodman

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