Manufacturers disappoint as rate of growth shows slump

Published on Tuesday 1 December 2009 20:39

BRITAIN'S manufacturing sector suffered an unexpected blow yesterday as figures for November showed a significant slump in the rate of growth.

The latest purchasing managers' index (PMI) fell back sharply, suggesting that the recovery in manufacturing may already have run out of steam.

The index, published by research group Markit and the Chartered Institute of Purchasing and Supply, regressed to 51.8 from 53.4 in October. City economists had forecast further progress to 54.0.

Although growth remains positive, economists warned that the sector's revival may already have reached a peak. Howard Archer, chief UK and European economist at IHS Global Insight, said: "It is a reminder that the UK still faces a tough battle to develop decent sustainable recovery."

A lack of demand for investment goods, such as large machinery for factories, hampered the sector in particular.

However, there was scope for optimism on the export front, as the depreciation of sterling has stimulated demand for British-made goods in markets such as Europe, the US and Asia.

Manufacturing unemployment fell for the 19th successive month in November, but the pace of decline hit its slowest level for one and a half years.

Owen James, economist at the Centre for Economics and Business Research, said although the data is an unexpected setback, the picture is improving compared with 12 months ago.

James expects manufacturing to have contributed to a return to GDP growth in the fourth quarter after Britain disappointingly failed to exit recession between July and September. He said: "The trend over the last year has been gradual improvement."

PMI for the eurozone, also published yesterday, revealed a second consecutive month of growth. The pace of activity exceeded expectations thanks to a strong rebound in Germany, France and Italy. But concerns are mounting over Spain, where output contracted further in November.

In the UK there was further speculation over next week's Pre-Budget Report from Chancellor Alistair Darling. The influential Ernst & Young Item Club will today warn that the government will fall 15 billion short of its own borrowing projections over the next four years.

Meanwhile, a poll yesterday revealed that economists do not expect the Bank of England to extend its quantitative easing programme at this month's meeting of the monetary policy committee.