UK Economy: Manufacturing Shrinks Rapidly



Manufacturing falls at fastest rate since June 2009

Manufacturing falls at fastest rate since June 2009

The British manufacturing sector shrank for the second month running in November, and fell at its fastest rate since June 2009.

Output and orders both fell because global demand stayed extremely week throughout the month.

Purchasing Managers’ Index

These figures are derived from the Markit/CIPS Manufacturing Purchasing Managers’ Index (PMI), which tracks the growth or contraction of trade sectors through surveys.

The PMI fell to 47.6 in November, from 47.8 in October. November’s figure is the lowest since the height of the recession, in June 2009.

Any number below 50 on the PMI indicates contraction, meaning the UK’s manufacturing output has been grinding to a halt for two months in a row. Analysts take a grim view of the months to come, predicting further contraction in December and January.

Because of these gloomy outlooks, economists at ING Financial Markets have predicted a fresh round of quantitative easing to be issued by the Bank of England in the new year. Experts say that even if next week’s meeting of the European Central Bank and EU leaders goes well, there will be little left for Britain to do besides resume its asset purchasing and money printing programmes.

Recession

With the manufacturing sector running out of steam, jobs are being lost at its fastest rate in two years. Thousands are being cut from factories and warehouses that cannot afford staff their businesses on the back of such weak global demand for products.

On top of this, the Organisation for Economic Co-operation and Development has issued a bleak warning that Britain is in for a recession early next year. The announcement came after the forecast for Britain’s economic growth in 2012 was cut from 2.5% to a paltry 0.7%.

Experts are also concerned by the methods that the manufacturing industry is using to get through this tough time. Many manufacturers have been relying on stores in their inventories rather than producing new goods in order to cut costs.

This means that while inventories have propped up economic growth in the third quarter, they could pull down growth in the fourth quarter.

Experts warn that relying on previously placed orders to avoid cutbacks in output – since there is a lack of new orders – is a dangerous scheme that cannot go on indefinitely.

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