Manufacturing hit by Eurozone financial crisis

The UK's recovery hopes were dealt a blow today as problems in the crisis-hit eurozone - the UK's biggest trade partner - hit the manufacturing sector.

The Markit/CIPS survey, where a reading above 50 represents growth, fell to 50.5 in April from 51.9 in the previous month and City expectations of 52. It was the weakest rate of growth so far this year.

The slowdown was driven by the first decline in new orders for five months, reflecting a drop in new export business as demand weakened in the eurozone.

Howard Archer, chief UK and European economist at IHS Global Insight, said the survey was “disappointing and an early blow” to hopes the economy will return to growth, after official figures last week showed the UK was in a technical recession.

Gross domestic product (GDP) shrank by 0.2% in the first three months of 2012, following a 0.3% contraction in the final quarter of last year.

A slide in construction output and a stagnant services sector were blamed for the dip, which had not been expected by experts after a run of strong PMI manufacturing surveys.

Economists have already raised concerns about the second quarter, as additional bank holidays for the Queen's Diamond Jubilee are expected to knock growth.

Markit said the latest decline in production was largely centred on the consumer goods sector, while output rose at producers of investment goods, such as machinery.

The fall in exports was the sharpest since May 2009, Markit said.

Mr Archer added: "Not only is eurozone contraction and soft activity elsewhere hurting exports, but domestic demand for manufactured goods is handicapped by a still appreciable squeeze on consumers' purchasing power as well as by tighter public spending."

The latest survey suggested that inflationary pressures on manufacturers eased in April, after surging higher on the back of rising oil prices during March.

Companies nonetheless continued to report paying higher prices for chemicals, eggs, feedstock, fuel, metals, oil and polymers.

And in a blow to the Bank of England, average output price inflation continued to accelerate in April, with charges rising at the quickest rate for seven months, as manufacturers passed on increases in input costs to their clients.

PA