Shock fall in manufacturing output

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FIGURES showing a shock fall in manufacturing activity today fuelled fears that Britain is heading for a triple-dip recession.

The latest Markit/CIPS purchasing managers’ index (PMI) revealed that overall activity contracted as output fell, with a headline reading of 47.9 in February - below the 50 level which separates growth from contraction.

The index slipped into the red for the first time since last November as the UK continued to be battered by poor weather and manufacturers suffered tough conditions both at home and abroad.

Chris Williamson, chief economist at Markit, said: “The return to contraction of the manufacturing sector is a big surprise and represents a major setback to hopes that the UK economy can return to growth in the first quarter and may avoid a triple-dip recession.

“The data so far this year point to manufacturing output falling by as much as 0.5%, meaning a strong rebound is needed in March to prevent the sector from acting as a drag on the economy as a whole in the first quarter.”

The sector was a significant drag on the wider economy at the end of last year, contributing to the worse-than-expected 0.3% decline in gross domestic product (GDP) in the fourth quarter.

The GDP blow has raised fears that the UK is heading for an unprecedented triple-dip recession if the economy contracts again this quarter.

Today’s disappointing figures will put more pressure on the Bank of England’s Monetary Policy Committee to grow its quantitative easing - or money printing - programme.

The most recent minutes signalled a split in the committee, with governor Sir Mervyn King and Paul Fisher joining previously lone voice David Miles in calls to restart the printing presses.

Manufacturers said they had shed jobs at the fastest rate for 40 months, with large firms making the biggest cuts as they continued to shed backlogs of work and some reported spare capacity.

David Noble, chief executive of the Chartered Institute of Purchasing & Supply, said the figures were a “reality check” for the manufacturing sector.

He said: “Of concern is the dearth of encouraging signs for the future. The sector witnessed a fall in new orders at home and a continued lack of demand abroad and, perhaps most ominously, we saw the greatest fall in employment for 40 months.

“Moreover, the sector seems to continue to grapple with the ongoing problems of playing hostage to European fortunes, whilst unable to fully take advantage of emerging growth markets,” he added.

New export orders declined for the 14th successive month as growth in emerging markets was offset by weak demand in Europe.

But Howard Archer, chief UK and European economist at IHS Global, said signs that eurozone activity bottomed out around October did offer some hope for UK manufacturing exporters.

He said: “In addition, sterling’s sharp recent retreat will be largely welcomed by UK manufacturers as it should boost their competitiveness both in foreign and domestic markets.”

But he warned the pound’s weakness could lift manufacturers’ costs for imported materials and parts.

The figures showed manufacturers had increased prices as they battled rising costs into the start of 2013, but there were signs that costs fell marginally during February following negotiations with suppliers.

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