Manufacturing recovery 'is stuck in low gear'

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The Independent Online

The manufacturing recovery suffered a jolt last month as new orders fell from the six-year high recorded in August, a survey showed yesterday.

The manufacturing recovery suffered a jolt last month as new orders fell from the six-year high recorded in August, a survey showed yesterday.

The CBI said that on balance 6 per cent of firms said their orders books were emptier than normal, compared with the 2 per cent last month who said orders were up.

"The manufacturing recovery appears to be stuck in low gear," said Ian McCafferty, its chief economic adviser. "Profit margins will remain under pressure." The fall brings the CBI closer into line with the other surveys and with the official statistics that recorded two consecutive months of falling output in June and July.

The CBI said the largest fall was from overseas with 14 per cent of firms on balance reporting a drop in export orders, the biggest drop for seven months. The slowdown in orders triggered a build-up of stocks and forced firms to scale down their output expectations for the next three months, the CBI said. The markets failed to react to the data although analysts said, at the margins, it would support the case for keeping interest rates on hold.

The minutes of the Bank of England monetary policy committee's meeting this month, published on Wednesday, showed that the MPC had taken some comfort from the CBI's strong August survey. "The September survey will erode this comfort a little at the margin," said Mark Walker at JP Morgan.

Analysts said the figures made it less likely that the MPC would raise interest rates again in November.

Merrill Lynch put its prediction for the next rate rise from November to February and said the peak would come at 5.5 rather than 5.25 per cent.

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