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Manufacturing growth slows down

Published 01/05/2015

New manufacturing figures come as a blow to George Osborne
New manufacturing figures come as a blow to George Osborne

Manufacturing growth posted a surprise slowdown to its weakest pace for seven months in April in a blow to George Osborne just six days before the General Election.

The sector posted a reading of 51.9 on the closely-watched CIPS/Markit purchasing managers' index (PMI) survey - where 50 separates growth from contraction. It was down from 54 in March.

Sterling fell by a cent against the dollar and the euro. The survey comes days after official figures showed that wider UK gross domestic product (GDP) growth had slowed to 0.3%, its weakest pace in more than two years, in the first quarter of 2015.

Today's data showed that while consumer goods were still performing strongly, activity producing intermediate goods - those produced for sale to other companies - fell into contraction.

Manufacturing firms said that while the domestic market was doing well, the strength of the pound was hitting competitiveness in the eurozone, the UK's largest trading partner. New export orders contracted at their worst pace since January 2013.

Jobs continued to be added but at the slowest pace since June 2013. Meanwhile firms were hit by a decline in output prices, which saw the steepest rate of deflation since September 2009.

Rob Dobson, senior economist at Markit, said: "Coming on the back of weaker-than-expected GDP numbers on Tuesday and only six days before the General Election, today's UK PMI delivered less than positive news on the health of the manufacturing sector.

"Rates of expansion in production and order books both slowed sharply in April, meaning manufacturing is again unlikely to provide much of a boost to broader economic growth.

"A key challenge for the next Government is to revive manufacturing and help it at least regain its pre-crisis peak, as any signs of rebalancing the economy towards manufacturing and exports remain frustratingly elusive."

Latest GDP figures show that while the wider economy has now surpassed its pre-recession peak in 2008, manufacturing remains 4.8% below where it was seven years ago. It is the dominant services sector that has led the UK to recovery.

Lee Hopley, chief economist at EEF, the manufacturers' organisation, said: "Recent data points to a marked loss of momentum in manufacturing activity since the start of the year.

"While consumer facing sectors are still forging ahead thanks to low inflation and a pick-up in wage growth, any sign that export growth was about to turn around at the end of last year now looks to have been a false dawn."

Samuel Tombs, of consultancy Capital Economics, said the slump in output prices was most worrying of all.

He said: "With overseas demand still weak, manufacturers are being compelled to offer deep discounts merely to stand still."

Howard Archer, of IHS Global Insight, said the figures were likely to reflect increased business caution ahead of next week's election and "highlights the importance for the economy that a sustainable government emerges" from the poll.

"Prolonged political uncertainty could take a significant toll on the economy," he said.

The fall in the PMI index number was the steepest since February 2013.

It is a disappointing early sign of how the economy has performed in the second quarter, a period when a number of experts have said they expect to see a pick-up after the weak start to the year.

The Bank of England last month described some of the official data on the economy as "volatile and susceptible to revision" and pointed to upbeat readings from unofficial surveys - but it is one of these surveys that is now showing signs of a slowdown.

Simon Wells, chief UK economist at HSBC, said: "Following the slowing in GDP growth in Q1, the first data on Q2 are not encouraging.

"Whoever forms the next government will be watching the short-term indicators closely for further evidence that the recent strong economic performance may be faltering."

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