UK manufacturing hit by weak exports
BRITISH manufacturing output posted an unexpected fall in April, raising the risk of a longer recession in Ireland's second largest trading partner.
Britain is still suffering from a slump that followed the 2007-2009 financial crisis and slipped back into recession around the turn of the year. With the eurozone crisis hitting exports and making companies reluctant to invest and hire, economists fear another quarter of contraction.
The National Institute of Economic and Social Research, a leading think-tank, estimates the economy eked out 0.1pc growth in the three months ending in May, but an extra public holiday in June could wipe out any increase in quarterly output.
Manufacturing output dropped 0.7pc in April after a 0.9pc rise in March, the Office for National Statistics said yesterday, disappointing hopes for an unchanged reading.
The wider reading of industrial output, which includes energy production and mining, was unchanged in April after a 0.3pc drop in March, but also below forecasts.
"Given that the eurozone crisis has intensified since April and recent manufacturing surveys have been very weak, it seems likely that the industrial sector will remain a drag on overall GDP growth for some time to come," said Samuel Tombs, economist at Capital Economics.
In another reminder of how closely Britain's economic fortunes are linked with those of continental Europe, the Society of Motor Manufacturers and Car Traders said the country could produce a record two million vehicles in 2015 provided demand from the eurozone held up.
Chancellor George Osborne warned on Sunday that the crisis in the eurozone was killing off the recovery in Britain, and even members of his own Conservative Party have called on him to take stronger action to boost growth.
But Mr Osborne's hands are tied by his pledge to erase the country's huge budget deficit, which is still around 8pc of GDP, although the coalition government has promised to come up with further steps to unlock infrastructure spending. Hopes of an early end to the recession had already been dented by a PMI survey showing the manufacturing sector shrank at its fastest pace in three years in May as orders nosedived.
The surprise drop had triggered speculation that the central bank would restart its money printing operations, but the BoE held back as concerns over high inflation outweighed growth worries.
"The thing the BoE can do something about is the weak underlying manufacturing activity," said Alan Clarke, economist at Scotiabank.
"That was worryingly weak even before the manufacturing PMI fell off a cliff," he said.
"We should brace for a bit more weakness in the months ahead." (Reuters)