Pound slows manufacturing growth to lowest point for year
Tuesday 02 September 1997
At the same time, separate figures showed that consumers took out far less than expected in new loans in July, following a bumper increase in credit the previous month. In addition, Halifax announced it had downgraded its forecast for house prices following the mortgage rate rises of recent months.
With buoyant consumer demand at home the only thing keeping industry expanding, the gloomier commentators yesterday foresaw a recession in manufacturing on the horizon.
Latest evidence on the state of the economy left the experts divided over the outlook for interest rates. "There is every chance that rates will be left on hold for the rest of the year," said Simon Briscoe at Nikko Europe. A ``wait-and-see'' policy was now appropriate.
However, David Walton at Goldman Sachs predicted it would take a lot more evidence like yesterday's figures to persuade the Bank of England not to raise the cost of borrowing again this year.
Geoffrey Dicks at NatWest Markets said: "The economy is not in for a hard landing, but exporters will have a torrid time."
The monthly survey of purchasing managers in manufacturing showed that industrial activity was expanding in August, but at the slowest rate since June 1996. The index of activity fell to 51.3 from 53 in July.
The survey reported that strong demand for consumer goods was driving up new orders, but export orders fell again. The exports index declined to 46.7, well below the 50 ``boom-bust'' dividing line, with 30 per cent of the firms surveyed saying their overseas orders were down.
Output growth last month was the weakest this year, while manufacturers said they had cut employment levels for the first time since March.
Peter Thomson, director general of the Chartered Institute of Purchasing and Supply, said this month's results clearly painted a weaker picture. "There is a danger of cooling the economy as a whole to the point where manufacturing is in recession," he said.
At the same time, yesterday's figures from the Bank of England provided the first indication for many months that consumer spending might be running at less than fever pitch.
New consumer credit amounted to only pounds 506m in July compared with pounds 1.3bn in June due to a big drop in the take-up of personal loans from banks. Borrowing on credit cards increased compared with the previous month, and net mortgage borrowing also climbed by pounds 300m to pounds 2.3bn.
The Bank of England also reported a slowdown in the growth of M0, the narrow money measure which consists mainly of cash. The annual growth in notes and coin in circulation dipped to 5.1 per cent last month from 5.5 per cent in July.
These weaker monetary figures coincided with news from Halifax that house prices rose by 0.5 per cent in August after a 0.1 per cent increase in July, leaving annual house price inflation unchanged at 6.4 per cent.
As a result of the mortgage rate rises and Budget increases in stamp duty and mortgage tax relief, Halifax said it was cutting its forecast for house price inflation this year to 6 per cent from 7 per cent.
But Halifax's figures are increasingly at odds with those published by Nationwide, which last week reported annual house price inflation of 12.1 per cent.
Economists reckon the divergence might be due to the South-east, where prices have soared, having a bigger weight in Nationwide's index.
The revival of hopes in some quarters that a further rise in interest rates will be unnecessary helped take the FTSE 100 index higher yesterday.
It ended up nearly 53 points at 4,870.2. Other European stock markets also staged a recovery from last week's Asia-related nerves.
Comment, page 17
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