Wed, May 02, 2018 - Page 10 News List

UK factory growth falls to 17-month low

APRIL BLUES:PMI data released yesterday reinforced that the British economy has slowed down this year, while manufacturers’ optimism hit a five-month low

Reuters, LONDON

British manufacturing growth last month slid to a 17-month low, sending sterling sinking and further reducing the chances of an interest rate hike by the Bank of England (BoE) next week.

The pound fell below US$1.37 for the first time in three-and-a-half months after yesterday’s Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI) dropped a full point to 53.9 in March, below the average forecast of 54.8 in a Reuters poll of economists.

It was the second disappointing data point in the space of a few days after official figures on Friday showed Britain’s economy barely grew in the first three months of this year, with heavy snow only partly to blame.

Separate figures from the bank showed consumers borrowing slowed sharply in March, in line with earlier data showing a big fall in retail sales that month.

“All in all, Markit’s manufacturing survey provides more evidence that the economy has fundamentally slowed this year, strengthening the case even more for the MPC [Monetary Policy Committee] to hold back from raising interest rates later this month,” said Samuel Tombs, the London-based chief economist for UK consultancy Pantheon Macroeconomics.

Even before Friday’s weak growth figures, bank Governor Mark Carney had said economic data had been mixed and suggested the bank might wait rather than raise rates to a new post-financial-crisis high of 0.75 percent on Thursday next week.

There was nothing in yesterday’s PMI report to suggest British factories — which account for around a 10th of overall economic output — would regain the vigor they enjoyed late last year, when a recovery in the eurozone boosted British manufacturing.

Gauges of new orders and exports weakened to the lowest levels since the middle of last year, while manufacturers took on staff at the slowest pace since February last year.

IHS Markit said weakness centered especially around producers of consumer goods who have been hit by the reduced spending power among households caused by last year’s rise in inflation.

BoE data yesterday added to signs of a lackluster consumer economy, as Britons borrowed a net £254 million (US$347 million) in March. A Reuters poll had forecast growth of £1.45 billion.

The year-on-year growth rate in unsecured consumer lending tumbled to 8.6 percent, its slowest since November 2015, down from 9.4 percent in February.

The drop in the annual growth rate was the sharpest from one month to the next since August 2009. On a three-month on three-month basis, which gives a clearer idea of the short-term trend, lending growth slowed at the fastest pace since 2000 to an annualized rate of 6.3 percent.

“With real incomes barely rising, such a sharp fall in consumer credit does not bode well for either the high street or the overall growth outlook,” ING economist James Smith said.

IHS Markit said optimism among manufacturers dipped to a five-month low last month as concerns about Brexit, trade barriers and the overall economic climate remained widespread.

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