Activity in Britain’s manufacturing industry came in shy of expectations as a slowdown in new orders sent output drifting to a three-month low.
The closely watched Markit/CIPS UK Manufacturing purchasing managers’ index (PMI) showed a reading of 54.3 last month, down from 56.3 in May and below economists’ forecasts of 56.4.
A reading above 50 indicates growth.
The report pointed to a widespread slackening across the industry, with output and new orders climbing at “milder rates” in the consumer, intermediate and investment goods sectors.
Despite the slowdown, the average rate for the second quarter still reached a three-year high at 55.9.
Rob Dobson, senior economist at IHS Markit, said the industry pushed through the political uncertainty surrounding the Brexit vote and the General Election to deliver further growth.
He said: “The main factor driving the broad slowdown in June was a steep easing in the rate of increase in new order intakes.
“New business rose at the weakest pace for nearly a year and growth was down sharply from April’s near three-year high.
“This slowdown was largely centred on the domestic market, where increased business uncertainty appears to have led to some delays in placing new contracts.
“Export orders remained disappointingly lacklustre despite the ongoing competitiveness boost of the weak sterling exchange rate.”
New orders were struggling to keep pace both at home and abroad, with growth of new export work slipping to a five-month low.
The choppy political environment was also hanging over the industry, sending positive sentiment to its lowest level for seven months.
However, nearly 48% of manufacturers still expect output to be higher by this time next year thanks to increased investment, new product launches and lift from new business.
Howard Archer, chief economic adviser to EY ITEM Club, said June’s slowdown will add to the concerns lingering over the industry.
He said: “Increased prices for capital goods and big-ticket consumer durable goods, diminished consumer purchasing power and likely increasing business concerns and uncertainties over the economy and political situation look likely to hamper manufacturers.
“On the positive side – despite the disappointing June export orders – the overall substantial weakening of the pound and improved global demand should buoy UK manufacturers competing in foreign markets.
“The weakened pound could also encourage some companies to switch to domestic sources for supplies, which may help manufacturers of intermediate products.”
Sterling’s slump has proved a double-edged sword for manufacturers, fuelling demand by making British goods cheaper for overseas buyers while ramping up import costs.
Firms have been grappling with surging prices since the Brexit vote, but the report said input costs and output charges eased back in June from highs at the start of the year.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Weakening demand and the fall in the oil price meant that output prices rose at the slowest rate since September.
“At the margin, then, today’s manufacturing report weakens the case for raising interest rates soon, although Wednesday’s services survey will have a much bigger bearing on the (Bank of England’s) Monetary Policy Committee debate.”
Sterling was down 0.4% versus the US dollar at 1.296 following the update and marginally lower against the euro at 1.139.
The UK currency was on the rebound last week, breaking back through the 1.30 US dollar mark after Bank of England Governor Mark Carney hinted that interest rates could rise if wages firm and business investment strengthens.
It came as UK economic growth was confirmed at 0.2% for the first quarter, a marked slowdown compared with an expansion of 0.7% seen in the final three months of 2016.
British households faced a sustained squeeze on their finances at the start of the year as disposable incomes shrank and the amount set aside for savings hit record lows.
The Office for National Statistics (ONS) said household spending slipped to 0.4% in the first three months of 2017, down from 0.7% in the fourth quarter of last year.
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