Hopes for a rebalancing of the UK's economy towards manufacturing and exports were dented further yesterday as the latest snapshot of the industrial sector pointed to the weakest growth in three months in December.
The Markit/CIPS Purchasing Managers' Index, where any reading above 50 signals growth, came in at 52.5 - down from 53.5 the previous month and lower than the 53.7 the City had been expecting.
The data helped to send the pound down more than 1 per cent against the dollar to $1.5372, a 16-month low, as traders placed further bets against an early hike in interest rates from the Bank of England.
The growth came from the domestic market, with export orders described as "lacklustre" over the month. "The latest survey provides further evidence of the ongoing slowdown in the UK manufacturing sector, with output and new order growth easing to their second-weakest rates during the past year-and-a half," said Rob Dobson, of Markit.
James Knightley, an analyst at ING Bank, said that "the long hoped for economic rebalancing story is not playing out as envisaged".
Exports under the Coalition have disappointed the City, with the value of exports still no higher today than in 2011, according to official statistics.
Manufacturing employment rose again in December, the 20th consecutive month of expansion, with the rate of employment growth little-changed from November's four-month high.
The Markit/CIPS survey also showed subdued price pressures from the manufacturing sector, which is likely to make it easier for the Bank of England to keep rates at their historic lows of 0.5% for a while longer. New business lending figures from the Bank of England showed a slightly more encouraging picture, with net lending to small and medium-sized firms rising by £252m in November.
Net monthly bank lending to small businesses has been negative for most of the past three years, despite schemes from the Bank and the Treasury designed to boost lending. However, net lending to all non-financial businesses fell once again in the month by £1.1bn to £399bn.