Manufacturing fuels triple-dip fear

THE threat of a triple-dip recession loomed large today after figures suggested Britain’s manufacturing sector contracted in the first quarter following another month of sliding output.
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The sector’s “winter of discontent” continued into March as overall activity slumped for the second month in a row, with a worse-than-expected headline reading of 48.3 - below the 50 level which separates growth from contraction, the latest Markit/CIPS purchasing managers’ index (PMI) revealed.

While this was up marginally on the 47.9 recorded in February, it left the overall reading at 49 for the first three months of 2013 after further falls in production and new orders.

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Economists said the poor performance from manufacturers could be enough to tip the UK back into recession if the larger services sector also struggled to grow in the first quarter.

Samuel Tombs, UK economist at consultancy Capital Economics, said: “The continued weakness of the UK CIPS manufacturing survey in March keeps the threat of a so-called triple-dip recession alive.”

New export orders fell for the 15th month running in March, dashing hopes for a boost from the weakened pound.

The survey indicated that demand remained weak from Europe, while competition from the US and South Asia also hit the UK’s export market.

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Recent reports had suggested UK firms were benefiting from an export boom as recent falls in the value of the pound made British goods cheaper.

The British Chambers of Commerce said today it believed services firms had seen near record levels of export deliveries and orders in the first quarter.

But the Markit/CIPS report showed little respite for manufacturers and in fact suggested that the weak pound had pushed up prices for imported raw materials and semi-finished products.

Lee Hopley, chief economist at manufacturers’ organisation the EEF, said: “The continued weakness in the PMI is disappointing overall, but of particular concern is another month of falling export demand.

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“While manufacturers have made some good gains in non-EU markets over the past couple of years, the on-going drag on orders from the eurozone is still significant and likely to impact on prospects over the coming months.”

The recent bad weather was also cited as a factor behind recent falls in activity, as well as subdued client confidence.

David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, warned there was little prospect of an uplift for the sector in spring, with “more of the same” expected over the months ahead.

Hopes are pinned on the services sector to help offset woes in manufacturing and construction to bring the UK back from the brink of recession in the first quarter.

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The Office for National Statistics said service sector output increased by 0.8% in January on a year earlier and was up 0.3% month-on-month, despite the snow impact at the start of the year.

Further details on the service sector are due in a PMI report later this week, while a survey is also out on March construction activity tomorrow.

Dismal PMI readings for March could see the Bank of England take further action to boost the economy at this week’s rates meeting.

While policymakers are expected to keep the quantitative easing programme on hold at £375 billion, they have already said they stand ready to pump more money into the economy if needed.

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