Lacklustre growth in manufacturing

Further evidence that the UK economy is stagnating emerged today as official figures showed lacklustre growth in the manufacturing sector.

Manufacturing firms saw a 0.1% month-on-month rise in activity between June and July, the Office for National Statistics said. This was slightly ahead of expectations of flat growth in the period.

The wider index of production, which includes mining and quarrying and energy industries, fell by 0.2%, the ONS added, dragged down by shutdowns at oil sites.

Economists warned the data fuelled concerns for overall economic growth in the third quarter and increased the likelihood of the Bank of England injecting cash into the economy to jump start the recovery.

The outlook for UK manufacturing is bleak after a purchasing managers' index sank to a 26-month low in August, with output, new orders, export orders and employment all contracting.

While manufacturing only accounts for 12.8% of the total economy, it was the bright spot of the economy in 2010 and early 2011.

Furthermore, the powerhouse services sector, which makes up three-quarters of the economy, suffered its worst slowdown in activity in 10 years in August.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The fall in industrial production in July indicates that the sector endured a difficult start to the third quarter in the face of increasingly challenging domestic and global conditions, and fuel third-quarter growth concerns."

He added: "Manufacturers are plainly now finding life much more challenging as domestic demand is held back by serious headwinds notably including tightening fiscal policy and the serious squeeze on consumers' purchasing power, while weaker global growth is limiting export orders."

Within the manufacturing figures, seven industries saw a rise in activity and six industries posted a drop.

The largest contributors to the overall rise were the electrical and optical equipment industries, while the textiles and leather clothing industries dragged, dropping 3.5%.

The mining and quarrying sector saw a 1.4% drop month on month, as oil and gas work was hit by a series of site shutdowns due to maintenance.

Energy industries dipped 1.7% as gas, electricity and water supplies all declined.

Chris Williamson, chief economist at financial information company Markit, said the data will add weight to the calls for further quantitative easing among members of the Bank of England's monetary policy committee.

He said: "There is an increasing chance that the Bank may ease policy as soon as the October meeting, though it seems more likely that the MPC will wait until updated forecasts are available in its November inflation report."

PA