UK factories edge closer to end of downturn, PMI suggests

LONDON (Reuters) -Britain's manufacturers - hit in recent months by trade wars and higher taxes - moved closer to a return to growth in July and executives were their most optimistic in five months, according to a survey published on Friday.

The S&P Global/CIPS manufacturing Purchasing Managers' Index improved for a fourth month in a row to 48.0 from 47.7 in June, the weakest rate of contraction since January.

July's final reading was slightly weaker than a preliminary estimate of 48.2 and remained below the 50.0 level that represents the threshold for growth for a 10th straight month.

Britain's factories have been hit by fallout from U.S. President Donald Trump's trade tariff increases, finance minister Rachel Reeves' hike in social security contributions for employers and a big increase in the minimum wage.

Friday's survey pointed to an improvement with output of consumer and intermediate goods growing after several months of contraction and a measure of expectations for future output rising to its highest since February.

"The UK manufacturing sector is starting to send some tentatively encouraging signals," Rob Dobson, director at S&P Global Market Intelligence, said.      

However, a gauge of employment in the sector fell again as companies grappled with their higher labour costs and there were signs that jobs could take a further hit in the coming months, S&P Global said.

Dobson said manufacturers were likely to remain cautious before Reeves' next annual tax and spending plan in the autumn.

Prices paid and charged by factories increased at roughly the same pace as in June, the PMI showed.      

The Bank of England, which is expected to cut interest rates next week, is assessing the persistence of inflation pressures and the extent of a downturn in the jobs market.

The manufacturing sector accounts for around 10% of Britain's economic output. The dominant services sector weakened in July, according to the preliminary PMI. A final PMI for services is due to be published on Tuesday.

(Writing by William Schomberg; Editing by Toby Chopra)