Wednesday 1 July 2009

UPDATE: UK Jun PMI Signals Economy Recovering From Dire 1Q

UPDATE: UK Jun PMI Signals Economy Recovering From Dire 1Q

(Rewrites, adding details, analyst quotes, background.)

LONDON (Dow Jones)--The U.K.'s economy is showing signs that it is recovering after the sharp gross domestic product slump reported for the first quarter of 2009.

Data reported Wednesday show that the purchasing managers' index for the manufacturing sector rose to a 13-month high of 47.0 in June, from 45.4 in May, Markit Economics and the Chartered Institute of Purchasing and Supply said.

That outcome was stronger than expected, with economists surveyed by Dow Jones Newswires last week having estimated that the figure would rise to 46.5.

A reading above 50.0 indicates the sector is expanding, while a reading below 50.0 indicates it is contracting.

The Office for National Statistics also said Wednesday that the U.K. services sector posted its best performance since October last year, falling just 0.1% on the month in April.

"The U.K. manufacturing sector's purchasing managers' index has further boosted hopes that the U.K. will soon exit technical recession," said James Knightley, U.K. economist for ING Economics.

"The official monthly service sector output number also shows the smallest monthly fall since October last year. Add in the likelihood of increases in both the construction and service sector PMIs on Thursday and Friday it looks as though we could see positive GDP in the third quarter of this year," Knightley said.

The PMI survey has reported that, while the sector has been contracting for 15 straight months, the level of the decline has been easing since the beginning of the year.

The survey shows that manufacturing output in the second quarter was substantially above the level reported in the first three months of the year and is in line with other surveys and indexes, suggesting the U.K.'s economic recession hit the bottom in the first quarter.

The details of the PMI survey also show that the production sub-sector rose to 52.1 in June, the first rise above the key 50 level since May 2008. The rise was broad based with gains reported in output of capital goods, consumer and intermediate goods, Markit Economics said.

"June PMI data pointed to the first increase in U.K. manufacturing production for fifteen months," said Rob Dobson, senior economist at Markit Economics. "The most pleasing aspect of the recovery is that it was broad based," he said.

While production increased, the declines in new orders and employment eased further in June. For new orders, Markit Economics said the drop "was only modest" while the fall in the employment sub-index was the smallest since August last year.

The ONS services index, meanwhile, reported that the steepest decline came from the transport, storage and communication sector, which fell 1.2% in April from May. Distribution services, however, rose 1% over the same period.

While there is some optimism over the state of the U.K. economy, economists added a note of caution.

The increase in output likely partially reflects the large levels of de-stocking reported since the beginning of the year as new orders only improved marginally, said Jonathan Loynes, chief European economist for Capital Economics.

"Nonetheless, along with the modest improvement in the services index, the figures support the view that the economy contracted by much less in the second quarter than the 2.4% drop seen in the first quarter. But that's not an enormous comfort - a return to strong and sustained growth remains a long way off," Loynes said.

-By Ilona Billington and Laurence Norman, Dow Jones Newswires; 44 20 7842 9452;

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(END) Dow Jones Newswires

July 01, 2009 05:36 ET (09:36 GMT)

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