CENTRAL bankers in the UK and Europe face intense pressure today to pump more cash into their struggling economies after “absolutely dreadful” manufacturing data sparked fears that the recession is deepening.
The Bank of England (BoE) and the European Central Bank (ECB) will each unveil their latest interest rate decisions today amid calls for fresh measures to support the continent’s ailing economies.
BoE governor Sir Mervyn King and his European counterpart, Mario Draghi, will be in the spotlight after the eurozone debt crisis sparked a downturn in orders for factories.
While monetary policy committee (MPC) members in the UK are widely expected to sit on their hands, yesterday’s dire manufacturing figures have added weight to the case for further quantitative easing – or money printing – in the autumn.
The MPC is expected to hold quantitative easing levels at £375 billion following last month’s £50bn cash injection while interest rates will be kept at record lows of 0.5 per cent.
Britain’s manufacturing sector shrank at its fastest pace in more than three years during July, according to the purchasing managers’ index (PMI) survey by Markit and the Chartered Institute of Purchasing & Supply (Cips).
The PMI fell to 45.4 last month – its lowest reading since May 2009 – from 48.4 in June, which had itself been revised down. Any reading below 50 indicates the sector is contracting.
Howard Archer, chief UK and European economist at IHS Global Insight, branded the Cips figures as “absolutely dreadful” and said they dented hopes that the UK economy may have pulled itself out of recession over the summer.
Archer added: “The July purchasing managers’ survey is massively disappointing and worrying, indicating that the manufacturing sector’s problems are currently running deep.”
Osman Ismail, an economist at the Centre for Economic & Business Research (CEBR), warned: “While turbulence in the eurozone accounted for most of this decline, there were also reports of decreasing new orders from Asia. This is a worrying development, since extra-EU trade seems to offer the UK’s best chance of export growth while European economies remain in such prolonged turmoil.”
Philippa Oldham, head of manufacturing at the Institution of Mechanical Engineers, added: “If government is serious about supporting this industry and rebalancing the economy away from an overreliance on financial services then it needs to urgently develop a detailed manufacturing and industrial strategy with the collaboration of industry.”
Pessimistic news also flowed from the continent, with the eurozone PMI dropping to a 37-month low of 44.0, down from 45.1 in June. Even Germany, Europe’s powerhouse economy, was caught up in the turmoil. The only bright spot came from Ireland, where its PMI registered a 15-month high of 53.9, swelled by rising exports.
Draghi last week pledged to do “whatever it takes” to save the euro, prompting speculation that the central bank might return to the financial markets and resume buying bonds of under-pressure countries. A further cut to its key interest rate is also a possibility.
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Weather for Edinburgh
Sunday 19 May 2013
Temperature: 9 C to 16 C
Wind Speed: 7 mph
Wind direction: North east
Temperature: 9 C to 20 C
Wind Speed: 8 mph
Wind direction: North