Factory data shows easing contraction

The PMI survey hit a 13-month high in June, rising to 47.0 from 45.4 in May but it is still below the critical 50 mark that separates contraction from growth.

The PMI data showed that manufacturing production rose for the first time since March 2008, with an index reading of 52.1 in June. But new orders and stocks fell again in June, indicating that the expansion of output was mainly focused towards reducing backlogs of work.

Jonathan Loynes at Capital Economics said: “Historically, a balance of about 54 has actually been needed to point to rising output. And with the new orders balance edging up only a touch from 48.3 to 48.9, at least some of the improvement on the output side may reflect the temporary effects of the inventory cycle.”

Alan Clarke, economist at BNP Paribas, said the easing pace of contraction reinforced the likelihood of a positive GDP reading in the second quarter, a welcome relief after this week’s downward revision to first quarter GDP.

But official data, also released yesterday, showed output in the service sector falling in April, which could threaten an immediate and sustainable return to growth.

Across the Channel, there was positive news for the Eurozone, which saw its manufacturing PMI reach a nine-month high of 42.6 in June and new orders fell at a slower pace than the preliminary estimate had suggested, showing the smallest decline for a year.