UK heads for triple dip as factories slump, mortgage lending slides

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A construction worker walks in a building site in London March 2, 2011. REUTERS/Luke MacGregor

A construction worker walks in a building site in London March 2, 2011.

Credit: Reuters/Luke MacGregor

By Olesya Dmitracova and William Schomberg

LONDON | Fri Mar 1, 2013 5:53pm GMT

LONDON (Reuters) - The risk that Britain is entering its third recession in four years grew on Friday with figures showing that manufacturing shrank unexpectedly last month and mortgage approvals for home buyers dropped in January.

Gross domestic product fell at the end of last year, bringing Britain within sight of another recession and the latest data suggested the central bank may need to do yet more to revive the economy.

The pound sank to its lowest level against the dollar in more than 2-1/2 years, while prices of British government bonds - which the Bank of England could resume buying - rose after the releases.

The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) fell to 47.9 from a downwardly revised 50.5 in January, confounding forecasts for a rise to 51.0. It was the first reading below the 50 line that separates growth from contraction since November.

A separate release showed that mortgage approvals fell unexpectedly despite the authorities' efforts to boost lending.

"It's a bit of a double whammy of disappointing news," said Alan Clarke, economist at Scotiabank. "Not a good start (to the year) and really shouldn't change anyone's view that there's precious little growth momentum in the UK and particularly not in manufacturing."

The numbers are the latest in a string of bad news for the Conservative-led coalition government and its Chancellor George Osborne. Moody's downgraded Britain's triple-A rating last week, prompted by weak economic growth prospects.

In the last quarter of 2012, a plunge in factory output - which accounts for around a 10th of the economy - shaved 0.1 percentage point off economic growth, according to official data released earlier this week. Markit said factory output fell last month at the fastest pace since October.

"The return to contraction of the manufacturing sector is a big surprise and represents a major setback to hopes that the UK economy can ... avoid a triple-dip recession," said Chris Williamson, the Markit economist who compiled the survey.

"A strong rebound is needed in March to prevent the sector from acting as a drag on the economy as a whole in the first quarter."

OUTLOOK DIM AS ORDERS FALL

On some measures, the chances of such a rebound look slim. The subindex for new orders fell to 46.6 in February, the lowest reading since July, as market conditions remained tough at home and abroad, especially in Europe. Backlogs of work also shrank.

However, Williamson said there were good reasons to believe manufacturing could recover in March, noting that the weaker pound might help exporters, while factories were also hit by disruption to deliveries from bad weather in late January.

"The Chinese New Year holidays are having an increasingly disruptive impact on global trade flows ... and appear to have had a stronger than usual effect in February," he added.

The housing sector also revealed signs of weakness.

Mortgage approvals fell to 54,719 in January from 55,632 in December, short of analysts' forecasts for a rise to 56,500, the central bank said.

A rise in the flow of credit in recent months, particularly in home loans, fed hopes that the BoE's flagship Funding for Lending Scheme is helping home buyers, though lending to companies remains sluggish.

Mortgage lending grew by 147 million pounds, the smallest increase since August, also less than forecast.

(Editing by Jeremy Gaunt.)
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Comments (11)
DavidHill wrote:
A contraction on manufacturing output by the UK is not be a shock for those in the know. In this respect the UK has a dwindling number of world-class products that other countries want to buy and the reason why our balance of payments have been negative for the last four decades. What surprises me is that our politicians cannot see the reason for the UK’s decline as a global player in manufacturing and shows a total lack of understanding of how the world ‘ticks’. For several decades now the UK has not had in the quantities and meaningful numbers terms enough manufacturing products that others wish to buy, even the British themselves. What is wrong is that there is no central catalyst that is dedicated to the emergence of a future dynamic manufacturing base in the UK based upon the creation of new high tech industries to provide the new jobs and wealth that Britain desperately needs. Indeed there is apparently a total lack of appreciation here by politicians and the great significance of such an advancement. Therefore what the UK government should be putting in place is the foundations for a third-wave industrial revolution in Britain and not just tinkering about with the edges – something that will get the UK nowhere. The only mechanism that can over time get Britain out of its vast debt problems and provide long-tern sustainability is to build the vast ORE-STEM complex, a science, technology and manufacturing city that would sustain itself indefinitely. But what will our politicians do? They will simply not understand the reasoning for this and therefore the only mechanism to get Britain on its feet will never see the light of day. But, it is about time that the people of the UK pressed for such a change in thinking as it is their future that the government and their advisers are dabbling with and only that. For presently all the political parties have no solutions to the UK’s economic woes and how to get out of them. Therefore I just hope that some politician somewhere will see the great merit that such an undertaking as the ORE-STEM would provide for the UK now and in the future.

Indeed this science and technology city would be the central catalyst for economic dynamism for the UK. In this respect also Britain is the most creative and innovative nation on the planet according to international studies and where the Germans and Japanese determined that their fundamental thinking created up to 54% of the modern world. This is not historical either as we keep on inventing world changing events such as the WWW by Berners-Lee as a single example. Therefore what the British people need more than anything else is a complex that allows their creative thoughts and ideas to flourish for our universities to develop and what is left of British industry to manufacture for the rest of the world. This can happen but where again the UK’s politicians cannot see this and the best that they can do is to put forward HS2 that will not create economic dynamism for after it is built we shall still need the new industries for jobs and new wealth creation. The whole thinking of government and opposition parties is wrong and the sooner they start thinking long-term and out of the box with new ways forward such as the ORE-STEM complex the sooner the UK can start to drag itself out of the dire economic state that it is in and will continue to decline if radical new thinking is not introduced. Better to invest £32 billion in an economic catalyst as the ORE-STEM than HS2 that will provide very little economic benefit. Indeed the ORE-STEM complex would transform Britain economic fortunes over the next 30-years. It is the only thing that will.

Dr David Hill
World Innovation Foundation

Mar 01, 2013 12:08pm GMT  --  Report as abuse
DavidHill wrote:
A contraction on manufacturing output by the UK is not be a shock for those in the know. In this respect the UK has a dwindling number of world-class products that other countries want to buy and the reason why our balance of payments have been negative for the last four decades. What surprises me is that our politicians cannot see the reason for the UK’s decline as a global player in manufacturing and shows a total lack of understanding of how the world ‘ticks’. For several decades now the UK has not had in the quantities and meaningful numbers terms enough manufacturing products that others wish to buy, even the British themselves. What is wrong is that there is no central catalyst that is dedicated to the emergence of a future dynamic manufacturing base in the UK based upon the creation of new high tech industries to provide the new jobs and wealth that Britain desperately needs. Indeed there is apparently a total lack of appreciation here by politicians and the great significance of such an advancement. Therefore what the UK government should be putting in place is the foundations for a third-wave industrial revolution in Britain and not just tinkering about with the edges – something that will get the UK nowhere. The only mechanism that can over time get Britain out of its vast debt problems and provide long-tern sustainability is to build the vast ORE-STEM complex, a science, technology and manufacturing city that would sustain itself indefinitely. But what will our politicians do? They will simply not understand the reasoning for this and therefore the only mechanism to get Britain on its feet will never see the light of day. But, it is about time that the people of the UK pressed for such a change in thinking as it is their future that the government and their advisers are dabbling with and only that. For presently all the political parties have no solutions to the UK’s economic woes and how to get out of them. Therefore I just hope that some politician somewhere will see the great merit that such an undertaking as the ORE-STEM would provide for the UK now and in the future.

Indeed this science and technology city would be the central catalyst for economic dynamism for the UK. In this respect also Britain is the most creative and innovative nation on the planet according to international studies and where the Germans and Japanese determined that their fundamental thinking created up to 54% of the modern world. This is not historical either as we keep on inventing world changing events such as the WWW by Berners-Lee as a single example. Therefore what the British people need more than anything else is a complex that allows their creative thoughts and ideas to flourish for our universities to develop and what is left of British industry to manufacture for the rest of the world. This can happen but where again the UK’s politicians cannot see this and the best that they can do is to put forward HS2 that will not create economic dynamism for after it is built we shall still need the new industries for jobs and new wealth creation. The whole thinking of government and opposition parties is wrong and the sooner they start thinking long-term and out of the box with new ways forward such as the ORE-STEM complex the sooner the UK can start to drag itself out of the dire economic state that it is in and will continue to decline if radical new thinking is not introduced. Better to invest £32 billion in an economic catalyst as the ORE-STEM than HS2 that will provide very little economic benefit. Indeed the ORE-STEM complex would transform Britain economic fortunes over the next 30-years. It is the only thing that will.

Dr David Hill
World Innovation Foundation

Mar 01, 2013 12:08pm GMT  --  Report as abuse
Raymond.Vermont wrote:
Housing Index is picking up,so once again I am finding Reuters economic interpretations, overly pessimistic in nature with regards the UK…

What the UK does need (for an economic boost) is more capacity for either Heathrow or Stansted. (i.e another runway)

Mar 01, 2013 12:42pm GMT  --  Report as abuse
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