Are the wheels falling off for UK manufacturers?

The UK manufacturing sector shrank for the first time in two years in July, according to the latest PMI survey.

by Elizabeth Anderson
Last Updated: 06 Nov 2012
After disappointing growth figures last week, the British economy’s been dealt another blow. The manufacturing sector contracted last month for the first time in two years, carrying warnings that ‘alarm bells are ringing’ for UK manufacturing.  

The latest Markit/CIPS UK manufacturing survey recorded a fall to 49.1 for July, from 51.4 in June (a reading above 50 means growth.) This was because of a slowdown in the domestic market – a reflection of Britain’s stuttering economic recovery and a consumer spending squeeze. New orders fell for the third month in a row and at the fastest rate since May 2009, when Britain was in the throes of recession.

British manufacturers also suffered at the hands of a shaky global economy – the economic crises on both sides of the pond left investors nervous and rattled markets, limiting export orders. The only positive findings of the report are that the weak pound is still supporting exports, Markit said, and inflation in input costs slowed.

The slump in manufacturing will come as a shock to many - not least the government which has championed the sector as the pathway to growth.   Chancellor George Osborne put manufacturing at the heart of his budget earlier this year, accompanied with cries to ‘get Britain making things again.’  And for a while it seemed manufacturing was the only bright spot on a fairly bleak horizon.  When it emerged at the end of January that GDP shrank by 0.5% in the last three months of 2010 - with icy weather blamed - manufacturing figures offered some relief. Data showed activity in January grew at its fastest pace since records began 19 years ago, surging to a reading of 62.

‘Alarm bells are ringing for the UK manufacturing sector, which has seen conditions deteriorate rapidly since the start of the year,’ David Noble, CEO at the Chartered Institute of Purchasing and Supply, warned. Other analysts put it more bluntly: Howard Archer, chief economist at IHS Global Insight, said Markit had published a ‘pretty horrible survey.’

Concerns are now likely to be voiced even louder over the strength of the UK economic recovery. Last week the ONS said GDP grew by 0.2% in the three months to June, down from 0.5% the previous quarter. With manufacturing also heading south, it’s bound to fuel fears that the UK is heading for another freeze – and this time it won’t be weather-related.

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