Manufacturing data could delay rate hike

Britain’s manufacturers received a fresh warning shot yesterday as it emerged that the sector had endured its worst performance in 14 months.

Rob Dobson said the Ukraine situation was hitting business
Rob Dobson said the Ukraine situation was hitting business

Firms were “walking rather than running” in August, according to the closely monitored Cips/Markit purchasing managers’ index (PMI). The survey’s headline activity barometer produced a weaker-than-expected reading of 52.5, down from 54.8 a month earlier, though still above the 50 level that separates expansion from contraction.

The report painted a picture of a broad slowdown, with inflows of new business and new export orders weakening and the pace of job creation easing.

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Markit senior economist Rob Dobson said it was evident that UK industry was not immune to the impact of the conflict between Ukraine and Russia on the UK’s biggest trading partner.

He said: “It is noticeable that where export orders were reported to have risen, companies mainly linked this to demand from North America, Asia and the Middle East, as opposed to our European partners.”

The downbeat findings will give Bank of England policymakers further food for thought this week as they consider whether to raise interest rates.

Howard Archer, chief European and UK economist at forecasting consultancy IHS Global Insight, said the data was “significantly softer” than expected.

“The survey will fuel expectations that the Bank of England will hold off from raising interest rates until early 2015,” he noted. “However, it is still a close call and much will clearly depend on what happens with wage growth over the coming months as well as the economy’s overall performance.”

A PMI for eurozone manufacturers also showed growth eased more than first thought, while Britain’s main manufacturing trade association, the EEF, cut its growth forecast for this year after members reported a big drop in export orders.