07/07/2003 16:41
Proponents of an interest rate cut today received further ammunition with news that Britain's battered manufacturing sector shrank in May.
Data from the office for national statistics showed that manufacturing output, accounting for about one-fifth of UK economic output, fell 0.2% in May from April to stand 2.1% lower than a year earlier, the worst annual decline since last October.
"Overall, they are weak numbers, underlining the fact that UK industry is double dipping again," David Brown, an economist with Bear Stearns, told Reuters. "This is a call for the Bank of England to cut rates. As far as the market is concerned, the majority seem to rule it out, but I think there is a very good chance that they are going to consider cutting rates, not only to boost the UK recovery but also to make a better contribution to global reflation efforts."
Even before the release of today's figures, the Bank, which will announce its interest rate decision on Thursday, was coming under renewed pressure from industry and unions to cut.
The Confederation of British Industry said that industry was increasingly impatient for lower borrowing costs, while unions warned that complacency could cost thousands more manufacturing jobs.
Thursday's decision by the Bank's monetary policy committee will be its first under its new governor, Mervyn King - considered an inflation hawk. Most economists think that the MPC will hold rates at their current 48-year low of 3.75%, but the consensus is for a cut probably in August.
Despite the woeful state of manufacturing, the Bank will be concerned at the rapid increase in household debt. According to official figures, mortgage equity withdrawals stand at record highs and credit card borrowing is surging.
The Liberal Democrats used today's figures to attack Gordon Brown, the chancellor again.
Pointing out that manufacturing output was still below 1995 levels and still in recession, Matthew Taylor, Mr Brown's Liberal Democrat counterpart, said: "Manufacturing is still in deep trouble with output below the levels when Labour came to power. There has been no recovery, no action from the chancellor, and no plans to reverse the recession."
Manufacturing has been struggling because of the strength of the pound against the euro and the weak global economy. The fall in sterling against the euro earlier this year is beginning to show up in order books but has yet to translate into higher production. In any case, sterling has begun creeping back up against the euro.
Within the manufacturing sector, half the sub-sectors showed monthly falls and half showed rises. Transport equipment was hardest hit, down 1.8%, mainly due to a 4.9% fall in car output. Electrical and optical equipment shrank 1.3% on the month with computer output down 4.8%.
Paper, printing and publishing, chemicals, and other manufacturing sectors saw rises. In the latest three months, transport equipment, including car production, showed a rise of 2.9% on the previous three months.
The wider measure of industrial production, which includes North sea oil and utilities output, showed a 0.1% rise on the month, the same as in April, to give an annual decline of 2.6%, the worst performance since last August.
In more upbeat news for the Bank, confidence and business in the financial services sector picked up for the first time in a year, according to the latest quarterly survey of the sector from the CBI and accountants PricewaterhouseCoopers.
In the March survey - overshadowed by the Iraq war - confidence fell at its fastest rate since the Russian financial crisis of autumn 1998.
But the latest survey showed a modest improvement. 24% of respondents said they were more confident than three months ago while 16% said they were less confident.
The increase of 8% is the first rise in confidence since June 2002, the CBI reported. Business was still considered below normal, although not to the same extent as in the previous two surveys.
Data from the office for national statistics showed that manufacturing output, accounting for about one-fifth of UK economic output, fell 0.2% in May from April to stand 2.1% lower than a year earlier, the worst annual decline since last October.
"Overall, they are weak numbers, underlining the fact that UK industry is double dipping again," David Brown, an economist with Bear Stearns, told Reuters. "This is a call for the Bank of England to cut rates. As far as the market is concerned, the majority seem to rule it out, but I think there is a very good chance that they are going to consider cutting rates, not only to boost the UK recovery but also to make a better contribution to global reflation efforts."
Even before the release of today's figures, the Bank, which will announce its interest rate decision on Thursday, was coming under renewed pressure from industry and unions to cut.
The Confederation of British Industry said that industry was increasingly impatient for lower borrowing costs, while unions warned that complacency could cost thousands more manufacturing jobs.
Thursday's decision by the Bank's monetary policy committee will be its first under its new governor, Mervyn King - considered an inflation hawk. Most economists think that the MPC will hold rates at their current 48-year low of 3.75%, but the consensus is for a cut probably in August.
Despite the woeful state of manufacturing, the Bank will be concerned at the rapid increase in household debt. According to official figures, mortgage equity withdrawals stand at record highs and credit card borrowing is surging.
The Liberal Democrats used today's figures to attack Gordon Brown, the chancellor again.
Pointing out that manufacturing output was still below 1995 levels and still in recession, Matthew Taylor, Mr Brown's Liberal Democrat counterpart, said: "Manufacturing is still in deep trouble with output below the levels when Labour came to power. There has been no recovery, no action from the chancellor, and no plans to reverse the recession."
Manufacturing has been struggling because of the strength of the pound against the euro and the weak global economy. The fall in sterling against the euro earlier this year is beginning to show up in order books but has yet to translate into higher production. In any case, sterling has begun creeping back up against the euro.
Within the manufacturing sector, half the sub-sectors showed monthly falls and half showed rises. Transport equipment was hardest hit, down 1.8%, mainly due to a 4.9% fall in car output. Electrical and optical equipment shrank 1.3% on the month with computer output down 4.8%.
Paper, printing and publishing, chemicals, and other manufacturing sectors saw rises. In the latest three months, transport equipment, including car production, showed a rise of 2.9% on the previous three months.
The wider measure of industrial production, which includes North sea oil and utilities output, showed a 0.1% rise on the month, the same as in April, to give an annual decline of 2.6%, the worst performance since last August.
In more upbeat news for the Bank, confidence and business in the financial services sector picked up for the first time in a year, according to the latest quarterly survey of the sector from the CBI and accountants PricewaterhouseCoopers.
In the March survey - overshadowed by the Iraq war - confidence fell at its fastest rate since the Russian financial crisis of autumn 1998.
But the latest survey showed a modest improvement. 24% of respondents said they were more confident than three months ago while 16% said they were less confident.
The increase of 8% is the first rise in confidence since June 2002, the CBI reported. Business was still considered below normal, although not to the same extent as in the previous two surveys.
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