U.K. Domestic Demand Drives Factory Pickup as Exports Stall

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U.K. manufacturing expanded less than economists forecast in May as producers struggled to attract demand from foreign markets.

A factory Purchasing Managers’ Index rose to 52 from a revised 51.8 in April, Markit Economics said Monday. Economists had forecast an increase to 52.5 from a previous reading of 51.9. A reading above 50 indicates expansion.

The report highlights Britain’s reliance on domestic demand while an economic recovery has yet to gain momentum in Europe, its biggest trading partner. Data last week showed exports dragged down activity in the first quarter, with net trade knocking 0.9 percentage point from gross domestic product growth. The overall economy expanded 0.3 percent in the period, the weakest since 2012.

“Expectations of a broad rebound in U.K. economic growth during the second quarter of the year are called into question by these readings,” said Rob Dobson, senior economist at Markit. “Manufacturing looks on course to act as a minor drag on the economy, as the sector is hit by the combination of the strong pound and weak business investment spending.”

The pound fell for a seventh day against the dollar and was down 0.3 percent at $1.5239 as of 9:50 a.m. in London.

Domestic demand also fuelled a pickup in new orders, as orders for export were little changed in May following a drop the previous month, Markit said. Consumer goods recorded “by far” the biggest gain in output and new orders.

Manufacturers raised average selling prices for the first time in five months, while input costs fell. A measure of employment showed the weakest pace of growth in more than two years.

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