Worries about Britain’s fragile economic recovery were revived yesterday as the downturn in the manufacturing sector intensified, heaping pressure on the Bank of England to offer further stimulus.
The closely-watched Markit/Cips purchasing managers’ index (PMI) revealed the sector had contracted for the sixth month in a row during October as export demand dwindled and cost pressures increased.
The headline activity index fell to 47.5 from a downwardly-revised 48.1 in September, dipping further below the 50 mark that separates growth from contraction.
Britain exited recession in the third quarter of the year with better-than-expected growth of 1 per cent in gross domestic product but yesterday’s survey will add to fears over the underlying health of the recovery. It will be studied closely by Bank of England officials ahead of next week’s key rate-setting meeting.
Several economists changed their view on the likelihood of further quantitative easing (QE) following the strong third-quarter gross domestic product (GDP) data.
However, the PMI report showed that manufacturers cut production for a fourth month in a row while new orders fell at a faster rate than in September as export demand dried up.
A similarly-negative PMI survey for the powerhouse services sector, due to be published on Monday, could push the central bank into launching further QE as early as next week.
Investec economist Victoria Clarke said: “Luckily the manufacturing sector is a much smaller share of the UK economy but it is much, much weaker. We expect the economy to grow through the fourth quarter, but with no help really from the manufacturing sector.
“I think it won’t swing the QE decision massively, it’s going to be a close call.”