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UK manufacturing growth ebbs, denting hopes for balanced recovery
September 1, 2014 / 12:31 PM / in 3 years

UK manufacturing growth ebbs, denting hopes for balanced recovery

LONDON (Reuters) - Britain’s manufacturing revival slowed sharply last month as the Ukraine crisis crimped demand from abroad, further denting hopes for a more balanced economic recovery.

Cranes are seen in an area of Industrial redevelopment on the river Tyne at Wallsend, northern England April 14, 2014. REUTERS/ Nigel Roddis

Factory orders from home and abroad rose at the slowest pace in more than a year, according to the Markit/CIPS UK Manufacturing Purchasing Managers Index (PMI), which fell to its lowest level since June 2013.

Separate data from the Bank of England showed a sharp increase in lending to consumers in June.

Taken together, the figures underlined Britain’s reliance on big-spending consumers to power its economic recovery.

“The combination of today’s data suggests that the UK’s expansion is in danger of losing its balance,” said Martin Beck, senior economic advisor to the EY ITEM Club.

“In early 2014, investment and exports offered solid support to GDP growth and reduced the economy’s reliance on consumer spending and the housing sector. But there is now concern that the UK is in danger of repeating the problems of the past.”

The BoE has warned that the long-term sustainability of the recovery hinges on growth broadening out from consumer spending and into business investment.

Monday’s figures are likely to bolster the view among analysts that the BoE will wait until early next year to raise interest rates from a record low 0.5 percent, rather than in the next few months.

Industry group EEF said manufacturing was still on course for a solid increase in output this year, although flagging overseas markets had weighed on demand for British goods.

Similar PMIs from the euro zone on Monday showed manufacturing output growth there also slumped to a 14-month low, with survey compiler Markit pointing to increased economic and geopolitical uncertainties.

Ukrainian President Petro Poroshenko accused Russia on Monday of “direct and open aggression” which he said had radically changed the battlefield balance in his country, which is fighting pro-Russian separatists.

MANUFACTURING NOT IMMUNE

The UK manufacturing PMI fell to 52.5 in August, below all forecasts in a Reuters poll and down from July’s downwardly revised 54.8. While still above the 50 mark that denotes growth, August marked its weakest level since June last year.

Trade association EEF on Monday trimmed its 2014 growth forecast for manufacturing - which accounts for around a 10th of Britain’s economy - after its members reported the first fall in export orders since early 2013.

“It is becoming increasingly evident that UK industry is not immune to the impacts of rising geopolitical and global market uncertainty,” said Rob Dobson, senior economist at Markit, which compiles the indexes.

Another part of Britain’s economy - the housing market - has been showing mixed signals of late.

While mortgage lender Nationwide last week said house prices surged unexpectedly in August, data from the BoE on Monday showed mortgage approvals fell in July to 66,569 from June’s 67,085, almost matching a Reuters poll forecast.

The BoE also said unsecured lending to consumers picked up sharply in July to 1.1 billion pounds ($1.8 billion) from 700 million pounds in June.

“It does appear that markedly improved consumer confidence - currently at the highest level for more than nine years - means that people have become more prepared to borrow in recent months,” said Howard Archer, economist at IHS Global Insight.

“(But) with debt levels relatively high, there is the concern that even a small rise in interest rates by early-2015 could cause problems for a significant number of people.”

Economists polled by Reuters were unanimous in their view that rates would stay on hold after this week’s policy meeting, which concludes on Thursday.

(1 US dollar = 0.6019 British pound)

Additional reporting by Li-Mei Hoang; Editing by Gareth Jones

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