UK manufacturing growth weakest since 2009

1st June 2011

Chancellor George Osborne is hoping that manufacturers will bounce back strongly, aided by the weakness of sterling, to help "rebalance" the economy and drive growth. Osborne said in his March budget that we should be "carried aloft by the march of the makers".

Rob Dobson, senior economist at Markit, which compiles the survey, said in the Guardian: "Domestic market weakness was the main drag on order books and output," he said, though he added that the extra bank holidays for the royal wedding may have depressed production, clouding the picture.

Ixy001 comments on the report: "If we stick to traditional slow growth markets of Europe and Asia of course we cannot create the jobs and wealth needed to reduce the deficit and start paying down the enormous national debt and associated Interest payments."

A report in the Daily Telegraph quotes a range of economists, including Howard Archer, IHS Global Insight. He says: "Hugely disappointing – not just the headline figure showing overall manufacturing activity at a 20-month low on May, but also the fact that the more forward-looking elements of the survey point to further softness ahead. This indicates that the hitherto buoyant manufacturing sector is now faltering appreciably.

Martincarter comments on the report, and says: "I'm out here 'in the field' although not for much longer, as we had already taken the decision to close.  There is no doubt in my mind that trade is imploding right across the economy, but it's important that people understand the extent to which high taxation and red tape is driving forward this collapse."

Fears are also mounting that economic recovery in the eurozone is petering out, after the PMI for the single currency area showed its sharpest decline since the height of the credit crunch in November 2008.

The eurozone PMI declined to a seven-month low of 54.6 in May, from 58 a month earlier, with output and new orders falling for the first time in two years.

Without a healthy upturn in the region's economies, the crisis in debt-burdened Ireland, Greece and Portugal is likely to deepen.

The survey also underlined the divide between northern Europe, where output is continuing to rise strongly, and the "periphery", where the impact of ferocious fiscal austerity is being compounded by the European Central Bank's recent decision to begin raising interest rates. The Spanish and Greek manufacturing sectors are contracting, according to the survey.

The survey also provided evidence that inflation in the single currency area is beginning to wane, just as the ECB has signalled that it is embarking on a concerted monetary tightening. The prices firms charged for their products grew less rapidly in May than a month earlier, while in crisis-hit Greece, prices actually fell.

Chinese manufacturing growth also edged lower in May, reported the Financial Times (paywall) but remained stronger than analysts had expected. The report says that this news suggests that the world's second-largest economy was gliding towards a ‘soft landing'.

The world's second-largest economy's official purchasing managers' index dipped to 52.0 last month from 52.9 in April, but this was a little ahead of most forecasts.

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