UK manufacturing shrinks at fastest rate for three years

Manufacturing has contracted for a third consecutive month, thanks to soggy weather, and the ongoing eurozone debt crisis.

by Michael Northcott
Last Updated: 19 Aug 2013

The UK's factory floors are seriously under threat, according to the latest Markit/CIPS purchasing managers’ index. The measure, in which anything below 50 means the sector is contracting, fell to 45.4 in July, the furthest it has slipped in a single month for more than three years. It is the third month in a row that the PMI has showed a contraction, prompting fears that any export-led recovery will not materialise before the end of 2012.

The contraction can be blamed (at least partly) on fears about the eurozone debt crisis, which have discouraged firms from placing orders and throttled production output. The wettest June on record also kept consumers indoors, meaning that wider public demand for goods was dampened too. And it's not just the manufacturing sector feeling the pain; it's the whole economy: ONS figures released last week showed the UK economy has contracted for the third consecutive quarter, this time by 0.7%.

The manufacturing slump is endemic throughout the EU however; Markit’s figures also show that Germany – the foremost industrial power in Europe – posted one of the lowest scores for July. At a PMI of 43, this is a three-year low for the country and puts it above only Greece and Spain. And as for the rest of the eurozone, massive public sector cuts, a general shortage of cash and spluttering economies means that eurozone unemployment is at its highest ever, with 18 million people out of a job. That’s two million more than this time a year ago.

Despite all the doom and gloom, however, Italy’s Prime Minister Mario Monti has put his head above the parapet to proclaim that 'there is light at the end of the tunnel' with the eurozone debt crisis. He says that measures agreed at last month’s leaders’ summit are starting to take effect. But Greece’s deputy finance minister yesterday came forward saying that his country is fast running out of cash while it waits for the next tranche of bailout money to land in the government current account.

The situation is so severe that if the money doesn’t come on time, the Greek government will be unable to pay wages for police, hospitals and schools, and even pensions and social benefits. So we’ve no idea where Monti’s optimism comes from -– the euro predicament looks worse than ever.

And, unfortunately, our small island is caught up in all this mess. Despite all the government's attempts to kick-start the economy, not even the all-knowing gods in Brussels can forecast when the storm will clear.

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