Strong pound sees slowdown in factory output

Lee Hopley highlighted recent loss of momentum in activity

Lee Hopley highlighted recent loss of momentum in activity

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Manufacturing growth posted a surprise slowdown to its weakest pace for seven months in April in a blow to chancellor George Osborne just days before the general election.

The sector posted a reading of 51.9 on the closely-watched Cips/Markit purchasing managers’ index (PMI) survey – where 50 separates growth from contraction. It was down from 54 in March.

The survey comes days after official figures showed that wider UK gross domestic product (GDP) growth had slowed to 0.3 per cent, its weakest pace in more than two years, in the first quarter of 2015.

The PMI data showed that while consumer goods were still performing strongly, activity producing intermediate goods – those produced for sale to other companies – fell into contraction.

Manufacturing firms said that while the domestic market was doing well, the strength of the pound was hitting competitiveness in the eurozone, the UK’s largest trading partner. New export orders contracted at their worst pace since January 2013.

Jobs continued to be added but at the slowest pace since June 2013. Meanwhile firms were hit by a decline in output prices, which saw the steepest rate of deflation since September 2009.

Lee Hopley, chief economist at EEF, the manufacturers’ organisation, said: “Recent data points to a marked loss of momentum in manufacturing activity since the start of the year.

“While consumer facing sectors are still forging ahead thanks to low inflation and a pick-up in wage growth, any sign that export growth was about to turn around at the end of last year now looks to have been a false dawn.”

Andy Hall, head of corporate banking for Barclays in central Scotland, said: “The only obvious bright light is that staffing levels across the sector continue to rise. However, we mustn’t overlook that wage inflation is increasing competition which means that the uplift in hiring is not just to meet demand from new orders but also to backfill vacancies that already exist.

“Clear and easy access to labour is essential if manufacturers are to remain central to driving UK economic growth.”

The latest GDP figures showed that while the wider economy has now surpassed its pre-recession peak in 2008, manufacturing remains 4.8 per cent below where it was seven years ago. It is the dominant services sector that has led the UK to recovery.

Howard Archer, of IHS Global Insight, said the data was likely to reflect increased business caution ahead of next week’s election and “highlights the importance for the economy that a sustainable government emerges” from the poll.

“Prolonged political uncertainty could take a significant toll on the economy,” he said.

The fall in the PMI index number was the steepest since February 2013. It is a disappointing early sign of how the economy has performed in the second quarter.

The Bank of England last month described some of the official data on the economy as “volatile and susceptible to revision” and pointed to upbeat readings from unofficial surveys.

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