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UK factory output falls for first time since May 2020

·Finance Reporter, Yahoo Finance UK
·2 min read
UK factory output A worker walks past freshly galvanised pieces of metal inside the factory of Corbetts The Galvanizers in Telford, Britain, June 28, 2022. REUTERS/Phil Noble
UK factory output grew at its slowest pace in 17 months in July. Photo: Phil Noble/Reuters

The UK manufacturing sector’s output declined for the first time since the first coronavirus pandemic lockdown in May 2020.

The preliminary version of the S&P Global's Purchasing Managers' Index (PMI), covering services and manufacturing firms, fell to 52.8 — the lowest since February 2021 — from June's 53.7.

It came as the reading for the broader economy slipped to 52.8 — down from 53.7 in June — a 17-month low.

Read more: Jubilee fails to lift retail sales as shoppers tighten purse strings

Output among factories contracted for the first time since May 2020 but travel and leisure firms saw stronger new orders, according to the survey.

The survey of UK business showed a slowdown in output growth driven by “softer demand”.

However, the latest data also indicated that cost inflation “eased considerably” against the previous month and was the lowest for 10 months.

The figures are good news for the Bank of England, as it might reduce pressure to deliver a bigger-than-usual interest rate hike next month.

UK interest rates
UK interest rates. Chart: Yahoo

Chris Williamson, chief business economist at S&P Global Market Intelligence, said: “UK economic growth slowed to a crawl in July, registering the slowest expansion since the lockdowns of early 2021.

“Although not yet in decline, with pent-up demand for vehicles and consumer-oriented services such as travel and tourism helping to sustain growth in July, the PMI is now at a level consistent with just 0.2% GDP growth.

Read more: Airlines accused of selling more tickets than available seats on flights

“Forward-looking indicators suggest worse is to come.

“Manufacturing order books are now deteriorating for the first time in one-and-a-half years as inflows of new work are insufficient to keep workforces busy, which is usually a precursor to output and jobs being cut in coming months.”

Prices charged by firms rose at the slowest pace since January as demand from clients softened.

Watch: How does inflation affect interest rates?