Bank of England policymakers meeting today faced renewed calls to hold their fire after official figures showed the manufacturing sector lagging the general recovery.
Britain’s factories limped back to growth in June as output rose by a smaller-than-expected 0.3 per cent after going backwards in May.
The British Chambers of Commerce (BCC) urged the monetary policy committee (MPC) not to rush into an early rate hike as the economy still faced “challenges” and “uncertainties”.
BCC chief economist David Kern said: “The slight increase in manufacturing and total production was much smaller than analysts expected, and suggests that the UK economy still has challenges to overcome.
“Despite encouraging progress seen by the manufacturing sector over the past year, its total output is still more than 7 per cent below its pre-recession level in 2008 – in contrast to services that are now more than 2 per cent higher. Manufacturing exporters are also trying to cope with a strong pound at a time when demand in the eurozone – our biggest trading partner – remains weak.
“There are a number of uncertainties still facing the economy, and we would urge the MPC not to jump the gun on interest rates. Our view remains that the risks to the economy of raising rates too early are much greater than the risks of waiting just that little bit longer.”
The data confirmed an earlier estimate that manufacturing grew by just 0.2 per cent over the course of the second quarter.
Recent purchasing managers’ surveys have suggested there was a further slowdown for manufacturing in July, despite good overall growth led by the UK’s dominant services sector. Total GDP grew by 0.8 per cent in each of the last two quarters.