Britain’s manufacturing sector shrank unexpectedly in February, according to the latest update from CIPS/Markit, and the news sent the pound tumbling against the dollar. The pound is now hovering at $1.5011, a fall of nearly 1%, the lowest it’s been since July 2010. Sterling also weakened 0.7% to 86.67p per euro.
The Markit index reading dropped to 47.9 from 50.8 in January, its lowest level since October (a reading of below 50 indicates a contraction) as factory output and new orders both fell. The news surprised the City because analysts had predicted a modest increase to 51.
Companies blamed tough market conditions at home and abroad for falling output, and weather was also mentioned as a factor negatively impacting on order book volumes. The tough trading conditions prompted them to cut staff at the quickest pace in more than three years, with big companies making the deepest cuts.
Chris Williamson, Chief Economist at Markit, warned: "The return to contraction of the manufacturing sector is a big surprise and represents a major set-back to hopes that the UK economy can return to growth in the first quarter and may avoid a triple-dip recession."
UK GDP shrank 0.3% in the last three months of 2012. If growth is negative again this quarter, the UK will be in an unprecedented triple-dip recession.