Estimated reading time: 2 minutes

In July, British factory production shrank at its swiftest rate in a span of seven months, impacted by rising interest rates and a reduction in new orders. This occurred despite the easing of price pressures, as revealed by a survey on Tuesday.

A drop was seen in the S&P Global/CIPS UK manufacturing Purchasing Managers’ Index (PMI), descending to 45.3 in July from 46.5 the previous month. This is the lowest score for the year and equals the weakest reading since May of last year, yet it surpasses the provisional PMI data’s estimate of 45.0.

The PMI has stayed under 50 for 12 consecutive months, as demonstrated by July’s numbers. A reading exceeding 50 is indicative of growth.

Factory output’s decline of 1.2% for the year ending in May was reflected in the latest official data.

S&P Global Market Intelligence’s director, Rob Dobson, described July’s manufacturing decline as more severe, exacerbated by increased interest rates, excess stock held by customers, and a reduction in foreign demand.

Nevertheless, the expectation that output will rise in the next year is held by over half of the manufacturers.

A continued decline in demand was seen in July, marked by the fastest reduction in new domestic orders since December, and a contraction in overseas orders at the sharpest rate since November.

Dobson said, “Domestic and export demand are weakening, and backlogs of work are declining sharply, all of which likely presages further cutbacks to production, employment and purchasing in the months ahead.”

In the third straight month, manufacturers paid lower costs for materials and energy, and factory prices were virtually the same as they were in June.

The Bank of England, anticipated to announce its 14th hike in interest rates on Thursday, is diligently observing price pressure indicators. This will assist them in determining the necessary number of additional rate hikes to rein in British inflation, which stood at 7.9% in June, the highest among leading advanced economies.

A slight improvement was noted in S&P Global’s future production measure from the low point it reached in June, while employment saw a reduction for the tenth consecutive month.

The final reading for the predominantly larger services sector is scheduled for release on Thursday.