Call for Government strategy on manufacturing as sector shrinks

AN industry group has urged the Government to develop a detailed manufacturing strategy after shock figures revealed that the sector is shrinking at the fastest rate in more than three years.

Philippa Oldham, of the Institution of Mechanical Engineers, described the latest purchasing managers’ index as “deeply worrying” and called for a cross-party consensus to ensure that UK industry has long-term political support.

The Markit/CIPS PMI revealed a drop to 45.4 in July from 48.4 in June, raising the risk of a further contraction in the wider economy.

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It was the lowest reading since May 2009, further off the 50 mark that separates contraction from growth, and well below even the most pessimistic forecasts.

The weak survey sent sterling to a two-week low against the euro.

“Pretty terrible, surprisingly bad,” Tom Vosa, economist at Yorkshire Bank, said about the PMI.

“Ultimately, this puts more pressure on the Bank of England to cut Bank Rate, and certainly the Government now has to hope that its Funding for Lending Scheme really comes good.

“But of course, if you are a lender in the UK and you are looking at this economy, why would you necessarily want to extend credit?”

Andy Tuscher, Yorkshire director at the EEF manufacturers’ organisation, said there was not much positive news to take from the survey with demand hammered by persistent weakening in eurozone markets and slower growth in other parts of the world.

He added: “While recent sharp falls in official data can be attributed to some impact from one-off events, the weak PMI raises question marks over whether we will see a bounce back in the near future.

“Government will need to return from recess with a lot more clarity around its plans to get growth back on track.”

The UK economy has not yet recovered the output lost during the 2008-09 slump, and the renewed recession comes when consumer finances are being squeezed by rising prices and higher taxes.

@bernardginns