March 1, 2013 / 9:37 AM / 7 years ago

UK manufacturing suffers shock contraction in February - PMI

LONDON (Reuters) - British manufacturing shrank unexpectedly in February and new orders dwindled, a survey showed on Friday, making it likely the sector will put a drag on economic growth in the first quarter.

A worker checks vehicles at a Ford car plant in Craiova, 230km (143 miles) west of Bucharest, October 29, 2012. REUTERS/Bogdan Cristel

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.

In the last quarter of 2012, a plunge in factory output shaved 0.1 percentage point off economic growth, contributing to a drop in gross domestic product that brought Britain within sight of its third recession since the 2008 crisis.

“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.”

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 sharply.

The manufacturing sector accounts for 10.5 percent of British economic output, according to the Office for National Statistics.

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.

Factory output fell last month at the fastest pace since October, with declines in the production of consumer goods and intermediate goods such as car engines, Markit said.

Some firms reported spare capacity, which was part of the reason for the fastest reduction in factories’ workforces in well over three years.

But there was at least respite for hard-pressed manufacturers as input costs dipped for the first time since August.

Editing by Hugh Lawson

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