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Home > Investments > Economic Indicators

By Rebecca Clancy | Published Aug 01, 2012

UK manufacturing slumps at fastest rate in three years

The UK’s manufacturing sector shrank at the fastest pace seen in 38 months in July, in a blow for the economy which is already batting a double-dip recession.

The Markit/CIPS Purchasing Managers’ Index (PMI) dipped to a reading of 45.4 in July - where a figure below 50 indicates a contraction - compared to a revised reading of 48.4 in June.

The slump was attributed to a sharp contraction in output and new orders in July, as companies faced weaker demand from domestic and export clients.

Operating conditions have deteriorated in each of the past three months, the index showed, while the level of new export business fell at the fastest pace since February 2009.

Markit said the eurozone remained the principal drag on new export orders, although there were now reports of a decline in new business from Asia.

Rob Dobson, senior economist at Markit and author of the PMI report, said manufacturing as a sector was a “major drag” on the overall economy, as it hit “turbulent waters” in July, with companies scaling back output to the greatest extent since March 2009.

“The July PMI survey suggests that the domestic market shows no real signs of renewed life, while hopes of exports charting the course to calmer currents were hit by our main trading partner, the eurozone, still being embroiled in its long-running political and debt crises,” he said.

“Brighter news may have been offered by a slight gain in employment and a further easing in input prices, but these will provide only short-term benefit if market conditions fail to improve substantially.

The weak data comes a week after it was announced the UK’s economy had shrunk by 0.7 per cent in second quarter of 2012, considerably more than the 0.2 per cent contraction that had been forecast by economists.

Meanwhile eurozone PMI manufacturing has hit a 37-month low, falling to 44 in July, down from 45.1 in June, and below the flash estimate of 44.1.

Markit said was a result of an accelerated contraction in output, new orders and employment in July.

The PMI manufacturing in the eurozone has now signalled a contraction for 12 consecutive months.

Ireland was the only country to busk the trend with its manufacturing hitting a 15-month high of 53.9, while every other member of the 17-state currency block recorded a contraction.

Germany, the eurozone’s largest economy hit a 37-month low of 43, while France, the second largest economy in the bloc, hit a 38-month low of 43.4.

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