UK manufacturing sector continues to shrink

Bad weather and weak demand from the crisis-hit eurozone left Britain’s manufacturing sector contracting for a second successive month in March.

Despite a small pick-up in the monthly survey of industry from the Chartered Institute of Purchasing and Supply and Markit, the index of activity remained below the recession cut-off point of 50.

The update found that firms were scaling back production in response to weak order books from both domestic and overseas customers, reports The Guardian.

A separate Markit study of the eurozone found the slump in manufacturing intensifying last month, with even businesses in Germany feeling the impact of the squeeze.

Most countries in the 17-nation single currency are suffering retrenchment in their manufacturing sectors, with particularly marked downturns in France, Italy and Spain – the second, third and fourth biggest eurozone economies.

The overall eurozone PMI fell from 47.9 to 46.8, its lowest level in three months. The index has remained below the 50 level that separates expansion from contraction since August 2011 and analysts warned that the report pointed to a 0.3% fall in euro zone gross domestic product in the first quarter of 2013.

In the UK, the manufacturing PMI edged higher from 47.9 to 48.3. Output dropped at the fastest pace since October 2012 but the prospects for new business brightened slightly.

New export orders weakened for the 15th successive month amid reports of stiff competition from the US and Asia and poor demand from Europe.

CIPS/Markit said there had been modest job losses in industry last month, concentrated in bigger companies. But the survey warned that cost pressures on manufacturing were increasing as a result of dearer electricity, oil and food products.

James Knightley, economist at ING said the UK performance was weaker than the City had expected, suggesting “that the sector continues to contract, which will weigh on 1Q13 GDP”.

“Meanwhile, the Bank of England lending data shows that the number of mortgage approvals dropped to 51,700 in February from 54,200 in January, but the net amount lent actually rose by £900m after a £300m increase in January. All this still points to a very subdued economy, which will keep the pressure on the BoE to do more to offset the UK’s tight fiscal stance.”