UK manufacturing sector growth decelerated sharply between March and April as export order inflow slowed sharply, a key survey has revealed, raising further worries about the prospects for an economy which is already back in recession.
The survey, from the Chartered Institute of Purchasing and Supply, fuelled expectations that the Bank of England might soon have to provide further monetary stimulus to the troubled economy.
This followed a survey last week from the Confederation of British Industry in Scotland, which showed that manufacturers north of the Border suffered a renewed slide in output in the latest three months and expect a further drop in the current quarter.
Data published last Wednesday by the Office for National Statistics showed UK gross domestic product fell 0.2% in the opening three months of this year. This was a second consecutive quarter of contraction – following a 0.3% drop in GDP in the final three months of 2011 – thus meaning the UK has fallen back into recession.
CIPS revealed yesterday its headline purchasing managers' index for the UK manufacturing sector, a composite measure of activity which includes output, new orders, employment, suppliers' delivery times, and stocks of goods purchased, dropped from 51.9 in March to 50.5 in April on a seasonally-adjusted basis.
This was only marginally above the level of 50 which, according to CIPS' calculations, separates expansion from contraction, and signalled the weakest pace of manufacturing activity growth of any month so far this year. The manufacturing output index fell from 54.3 to 51.8, reflecting particular weakness at consumer goods producers.
Samuel Tombs, UK economist at consultancy Capital Economics, said this manufacturing output index "on the basis of past form now points to quarterly falls in manufacturing output of around 0.2%".
CIPS' survey showed a sharp fall in new export orders in April, after a slight rise in March. Consequently, total new orders fell marginally, after four straight months of increase.
Although the fall in export orders arose partly from European markets, UK manufacturers also reported lower intakes of business from clients in the US and East Asia.
CIPS' survey is likely to be a disappointment to Chancellor George Osborne, who in March 2011 offered a vision of "a Britain carried aloft by the march of the makers".
Rob Dobson, senior economist at financial information company Markit and author of CIPS' manufacturing survey, said: "What manufacturers really need to see is a marked improvement in new order inflows, so April's sudden sharp drop in new export orders was a real disappointment. Manufacturers are still sustaining growth through past demand, a circumstance that cannot continue indefinitely."
Mr Tombs said: "We see little reason to doubt the CIPS survey's downbeat message. There is still little sign that the manufacturing sector will make a meaningful contribution to the economic recovery any time soon."
Howard Archer, chief UK economist at consultancy IHS Global Insight, said CIPS' manufacturing survey was "disappointing and an early blow to hopes that the economy will return to growth in the second quarter, especially as the Queen's Diamond Jubilee will hold back overall economic activity during the quarter".
CIPS' survey showed a further marginal rise in UK manufacturers' workforces in April. It revealed manufacturers raised their factory gate prices in April at the fastest pace for seven months, as they attempted to protect profit margins.
The Bank of England's Monetary Policy Committee has put in place a £325 billion quantitative easing programme, implemented through the purchase of Government and corporate bonds using central bank reserves, to boost money supply and stimulate activity.
Mr Archer said: "Whether or not the Bank of England favours more QE at their May meeting - looks a very close call, and much may depend on the overall tone of the April purchasing managers' surveys for services, manufacturing and construction."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article