Fears for UK economy mount as manufacturing expansion slows

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GROWTH of broad UK manufacturing activity slowed sharply in April to its weakest pace in 17 months, a survey has revealed, raising further concerns over the state of the UK economy.

Manufacturing employment growth meanwhile slowed to its weakest rate in 14 months. The consumer goods manufacturing sub-sector shed jobs for the first time since February 2017, according to the survey published yesterday by the Chartered Institute of Procurement & Supply, and the decline in its employment was the steepest for nearly six-and-a-half years.

The survey findings reinforced economists’ views that severe weather in late February and early March was far from the only factor in UK economic growth grinding to a near-halt in the first quarter.

Seasonally adjusted data published last week by the Office for National Statistics showed UK gross domestic product grew by just 0.1 per cent quarter-on-quarter in the opening three months of this year. This was the UK economy’s weakest quarterly expansion for more than five years.

CIPS’s weak manufacturing survey yesterday weighed on the pound, which fell more than 1.4 cents to $1.3609 and also dropped sharply against the euro.

Financial markets have, in large part as a result of the weak GDP data and CIPS’s survey, reassessed the chances of another rise in benchmark UK interest rates when the Bank of England’s Monetary Policy Committee meets next week.

Rob Dobson, director of survey compiler IHS Markit, said the chances of a near-term rise in rates looked “increasingly remote”.

CIPS’s purchasing managers’ index for the UK manufacturing sector, which measures changes in output, new orders, employment, suppliers’ delivery times and stocks of goods purchased, fell from 54.9 in March to 53.9 in April on a seasonally adjusted basis.

Although remaining comfortably above the level of 50 deemed to separate expansion from contraction, the manufacturing PMI pointed to the slowest growth in the sector for 17 months. It was also significantly weaker than the reading of 54.8 forecast by economists.

And UK manufacturers’ optimism about the prospects for increased activity in a year’s time slipped to its weakest in five months, amid Brexit-related uncertainty.

Growth in overall output and new orders in the UK manufacturing sector also slowed between March and April. Growth of new export orders slowed to its weakest pace in 10 months.

Mr Dobson said: “The start of the second quarter saw the UK manufacturing sector lose further steam. The headline PMI dipped to a 17-month low as growth of production, new business and employment all slowed.

“While adverse weather was partly to blame in February and March, there are no excuses for April’s disappointing performance, making the chances of a near-term hike in interest rates by the Bank of England look increasingly remote.”

He added: “On this footing, the sector is unlikely to see any improvement on the near-stagnant performance signalled by the opening quarter’s GDP numbers.”

The ONS figures showed UK manufacturing growth slowed to just 0.2% quarter-on-quarter in the opening three months of this year. The sector had grown by 1.3% in the fourth quarter of 2017.

Looking ahead, Mr Dobson said: “The trend in manufacturing production is likely to remain subdued. Weak demand meant firms are seeing backlogs of work fall and stocks of unsold goods rise, limiting the need for output to rise in May.

Business optimism has also dipped to a five-month low as concerns about Brexit, trade barriers and the overall economic climate remained widespread.”

Source: Herald Scotland

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