Gloomy manufacturing survey and fall in exports stoke fears of prolonged recession

 

Hopes that Britain would bounce swiftly out of recession were dealt a blow yesterday by a disappointing survey of activity in the manufacturing sector. The Markit/CIPS Purchasing Managers' Index (PMI) dipped to 50.5 in April, down from 51.9 in March.

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Any figure above 50 indicates an expansion, so the sector is still growing, but the moderation was larger than analysts had been expecting and growth is now at its weakest level since the turn of the year.

The fall in activity was partly due to a sharp contraction in new export orders, which fell at the fastest rate since May 2009, suggesting that the eurozone recession is beginning to undermine British growth prospects.

Some economists voiced fears that the weakness in manufacturing could mean Britain remains mired in recession for longer. Nida Ali, an economic adviser to the Ernst & Young Item Club, said: "These figures don't bode well for GDP in Q2. The extra Bank holiday in June is already likely to be a drag on growth and weak output in the rest of the quarter would compound this further."

The manufacturing survey news was especially depressing because, since the turn of the year, the PMI index for the sector has shown a more encouraging picture than the official production figures from the Office for National Statistics. This had encouraged many analysts to believe that the economy was in better shape than the official data had been suggesting.

Alan Clarke, at Scotiabank, said: "This reading is likely to pose some question marks over whether the GDP data were right in the first place and the PMIs are now catching down into line with those."

The most recent ONS production figures showed a 1 per cent monthly drop in its index of manufacturing production in February. The index was down 1.5 per cent on a year earlier, with the biggest falls seen in the output of computer and electrical equipment, rubber and plastic products and chemicals. Last week the ONS estimated that the UK economy contracted by 0.2 per cent in the first three months of 2012, following a 0.3 per cent contraction in the final quarter of 2011, confirming that Britain has seen its first double dip recession since the 1970s.

Attention will now turn to the rest of the monthly PMI surveys. The latest reading of the PMI for the construction sector will be published today.

The all-important PMI for services, which makes up 75 per cent of total output, will be revealed tomorrow. Recent services PMIs have pointed to a robust expansion, but the ONS said last week that the sector expanded by just 0.1 per cent over the first quarter of the year.

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