An employee grinds the steel hull of HMS Caroline, a world war one light battle cruiser, in the Port of Belfast, in Belfast, U.K. (Photographer: Chris Ratcliffe/Bloomberg)

U.K. Manufacturing Growth Picks Up in `Unconvincing' Rebound

(Bloomberg) -- U.K. manufacturing growth unexpectedly quickened in May as firms worked through backlogs and built up their inventories.

IHS Markit’s Purchasing Managers Index for the industry rose to 54.4 in May, up from 53.9 in April and beating economists’ estimates for a drop. Still, Markit noted the rebound “masked several areas of potential concern,” with companies seeing the largest rise in unsold stock in the survey’s history and the expansion of new work slowing.

U.K. Manufacturing Growth Picks Up in `Unconvincing' Rebound

“Scratch beneath the surface and the rebound in the PMI from April’s 17-month low is far from convincing,” said Rob Dobson, Director at IHS Markit. “There will need to be a rapid improvement in demand if output volumes are to be sustained in the coming months.”

The survey also showed that cost inflation intensified, while supply chains came under pressure and the pace of job creation lost momentum. The gauge of input costs eased to a four-month low, while rising intakes of new work tested capacity, leading to a modest increase in outstanding business and prompting companies to raise employment.

Markit’s concerns highlight the risk that the U.K. economy may not see a significant rebound from the first quarter, where heavy snow and storms helped reduce growth to near zero.

That increases the possibility that the nation’s underlying strength has diminished, complicating the case for Bank of England policy makers who say that more interest-rate hikes are needed to contain above-target inflation.

Investors, who are currently pricing in a one-in-three chance of a BOE increase in August, will get more information on the health of the economy next week, when Markit publishes similar indexes for the U.K.’s construction and dominant services sector.

©2018 Bloomberg L.P.