UK manufacturing output lowest in three years

Economic woes continue to afflict the factory floor, as the sector cuts back on output and employment.

by Michael Northcott
Last Updated: 19 Aug 2013

The UK’s struggling economy shows no signs of spluttering back into life, as yet another set of statistics reveals another stagnating sector. This time, the Markit/CIPS manufacturing Purchasing Managers’ Index dropped to 45.9 in May, down from 50.2 in April. This is the lowest index reported since the depths of the 2009 recession. 

Adding to the disappointment, the report also says that this is the first time the sector has contracted for six months. The only reason the decline was not even sharper, says the report, is because firms were able to divert spare capacity to complete existing contracts and clear backlogs of work. But with less in the pipeline, the machinery is bound to be coughing out fewer goods whilst the UK recession stumbles on.

To make matters worse, the report shows that more than a third of companies surveyed reported a decline in the number of new orders in May. So whilst clearing the backlog, many companies are not even getting new work in the near term. Part of the problem is the worsening situation in the eurozone. Domestic demand is already subdued, so any downward movement in Europe (our biggest export market) is bound to hit the manufacturing sector directly. 

If there is anything to be heartened by with this news however, it is the fact that the UK is not somehow getting it wrong on its own: manufacturing slumps have also hit Germany and France. But the downturn in manufacturing has prompted calls for the Bank of England to introduce another round of quantitative easing as soon as possible to stop the economy from faltering further. 

The situation is unlikely to improve in the near term however, as other measures of the UK economy do not look healthy. The British Chambers of Commerce has just announced a cut in its forecast for the UK’s GDP growth in 2012, from 0.6% to 0.1%. It has also called for a cash injection of £6bn into the UK economy, saying George Osborne should make his deficit reduction plans more flexible to avoid the economy falling into a shrinking spiral. Finally, the FTSE is at its lowest index in a year, at 5275, meaning investors are losing confidence in firms across a range of sectors. 

A return to growth, especially in manufacturing is going to take more than some good weather. The eurozone needs sorting before anyone can realistically expect a significant upturn, and we can only guess at when the situation will improve…

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