UK manufacturing dips to three-year low

Factories in Britain had their weakest month in almost three years, in February, as demand slowed and exports fell, according to a survey published on Tuesday.

Rob Dobson, Senior Economist at Markit, said: “The near-stagnation of manufacturing highlights the ongoing fragility of the economic recovery at the start of the year, and provides further cover for the Bank of England’s increasingly dovish stance. The breadth of the slowdown is especially worrisome” [1].

Data from the Purchasing Managers’ Index (PMI) fell to 50.8 from 52.9 in January, below economist forecasts. A score of above 50 represents growth within the manufacturing sector [1].

The reading, which is the weakest since April 2013 when Britain was beginning to recover from the financial crisis, highlighted why the Bank of England has said it’s ready to inject more stimulus into the economy if needed.

The BoE announced last month that the prospect of raising interest rates was unlikely until the latter part of the year.

Chancellor George Osborne recently warned that the UK economy is “smaller than we thought”, possibly signalling a new round of spending cuts at the Budget later this month [2].

Scott Bowman, Economist at Capital Economics, said: “The effect that the EU referendum vote has on the exchange rate, and demand from Europe, adds to the uncertainties facing the sector” [3].

Prices “remained firmly on the downside,” with costs and output prices both falling, Markit said [3].

While some of this is due to commodity prices, there is strong competition in the manufacturing industry, weighing on Britain’s overall economic growth at the end of last year. This leaves Britain’s much bigger services sector as the sole driver of the recovery.

[1] Reuters UK. ‘UK manufacturing activity slumps to nearly three-year low – PMI’.
[2] Financial Times. ‘UK manufacturing PMI drops to 34-month low’.
[3] Bloomberg. ‘UK manufacturing has its worst month in almost three years’.