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UK manufacturing PMI fell more than forecast in June

According to the report from S&P Global/CIPS, activity in the UK manufacturing sector fell to a 2-year low in June, but remained in expansion territory, while business optimism fell to its lowest level since May 2020.

Manufacturing PMI fell to 52.8 points from 54.6 points in May. Economists had expected a decline to only 53.4 points. However, the PMI has remained above the 50.0 mark - indicating an expansion in activity in the sector - since June 2020.

The data also showed that manufacturing production grew again in June, but showed the weakest rate of increase for 25 months. As for the sectors, consumer goods producers saw a marked downturn in output, while robust expansion was again registered in the investment goods industry.

Meanwhile, the volume of new orders in the manufacturing sector unexpectedly declined in June - for the first time since January 2021 - amid deteriorating economic prospects, falling new export orders, weak domestic demand, the Russian-Ukrainian conflict, a shortage of raw materials and slowing growth in China. New export orders also declined (for the fifth month in a row), due to a slowdown in growth in China, increased economic uncertainty and increased competition. Overall, worsening economic conditions have caused business optimism to fall to its lowest level since May 2020, but companies still expect output to be higher (on average) one year from now.

As for employment, it rose again in June (the eighteenth month in a row). Increased employment was linked to higher output, staff shortages and efforts to reduce backlogs of work. Meanwhile, inflationary pressures remained elevated. Input costs rose on the back of raw material shortages, stretched supply chains, higher prices for commodities, electronics and energy. Higher costs were passed on, in part, to clients in the form of increased selling prices. That said, rates of inflation in both price measures continued to ease.

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