UK manufacturing contracts again

According to the latest PMI data, new orders are down, and job losses continue in the UK's fragile manufacturing sector.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
The news follows in the wake of gloomy services data, released last week. According to the Office for National Statistics, growth of the UK services economy, which accounts for a total 77% of economic activity, stalled in April, rounding off a disappointing second quarter.

And the manufacturing industry has fared little better. Although PMI data shows that output is broadly up in June, reaching 48.6 up from the three-year low of 45.9 in May, demand is still weak and firms are continuing to downsize. The PMI is still failing to surpass the 50 mark, signaling contraction.

Backlogs, which were helping to maintain manufacturing volumes in previous months, have now cleared. But with a shortage of new orders, the outlook is tough for firms in the sector. Exports are down for the third consecutive month as the eurozone crisis continues to dampen demand for our closest market. The only silver lining is that input prices – the cost of raw materials – are also falling.

Rob Dobson, senior economist at Markit, commented on the results: ‘Manufacturing is seeing lots of volatility at the moment, due to factors such as the Jubilee holidays, making it very difficult to see what the underlying trend is,’ he says. ‘But the increase in production in June provides hope that the wheels have not fallen off the manufacturing economy.’

Even with a glass-half-full attitude, however, there’s no denying that the second quarter of 2012 is following Q1 down a perilous road. Far from providing a much-needed boost, manufacturing continues to be a substantial drag on the economy instead.

With this in mind, all eyes will be on the Bank of England this coming Thursday, as policy makers prepare to announce a possible £50bn boost to the Bank’s asset purchase programme. There may also be a rate cut from the ECB to boot. But will further lever-pulling have any real effect on the factories and workers struggling to survive? Only time will tell...

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