London, United Kingdom (4E) – UK manufacturing data continues its decline as orders for new export products tanked, signalling that the economy could expect further weakening in the third quarter.
The manufacturing sector shrank the most in more than three years with the seasonally adjusted purchasing managers’ index (PMI) falling to a 38-month low in July at 45.4 from June’s revised version of 48.4. This marks the third straight month of decreasing activity in the sector. Economists were expecting a PMI reading of 48.4 for the month. A below 50 PMI suggests that the sector is contracting while a reading above indicates expansion.
The latest manufacturing data follows the weak UK house price index by lender Nationwide, which is a further signal that the economy will have a difficult time ahead. Plummeting confidence and demand continues to be a problem for the UK economy that is currently in recession.
In July, there was a sharp contraction in new orders received by companies as they deal with softening demand from clients both domestic and overseas. A reflection of declining orders is the slower production at UK factories, which fell at the fastest rate since 2009. The slowdown is felt in both the intermediate and investment goods sectors.
For the second straight month, input prices fell, although the deflation rate was slightly slower compared to the three-year high in June. Output prices in July also rose as manufacturers tried to protect their margins by passing on the additional cost burden.
For the first time in three months, there was increase in workforces at UK manufacturing firms to fill in the necessary manpower to finish outstanding contracts as well as for company expansion plans.
The ongoing sovereign debt crisis in the euro zone, UK’s biggest trading partner, continues to be a drag in the growth for UK manufacturing. Analysts predict that the Bank of England’s response will be to maintain its target for its bond purchasing program aimed to boost lending.
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