U.K. Manufacturing Growth Holds Up in June After Subdued Quarter

(Bloomberg) -- U.K. manufacturing growth held steady in June, providing some modestly good news at the end of the worst quarter for the sector since the end of 2016.

IHS Markit's Purchasing Managers Index for the industry stood at 54.4 in June, up from a revised 54.3 in May and beating economists' estimates for a drop. The average reading for the second quarter as a whole was 54.2.

The survey showed business optimism dropped to a seven-month low last month, amid concerns about possible trade tariffs, the exchange rate and Brexit. Firms also flagged an increase in input costs and raw material shortages, which may jeopardize growth further. The pound stayed weaker after the release Monday, trading 0.3 percent lower at $1.3173 as of 9:56 a.m. London time.

“With industry potentially stuck in the doldrums, the U.K. economy will need to look to other sectors if GDP growth is to match expectations in the latter half of the year,” said Rob Dobson, director at IHS Markit.

The quarterly average suggests that U.K. growth may not see a significant bounce-back from the first quarter, when the economy expanded at a sluggish 0.2 percent. Such an outcome would complicate the case for Bank of England policy makers, who say that more interest-rate hikes are needed to control inflation.

Officials voted 6-3 to hold rates last month, with most content to see how data evolved before increasing borrowing costs again. Investors, who are currently pricing in about a 65 percent chance of a BOE increase in August, will get more information on the health of the economy later this week, when Markit publishes similar indexes for the U.K.'s construction and dominant services sector.

July's readings will then be released in the week of the BOE's decision.

--With assistance from Harumi Ichikura.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Lucy Meakin

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