Bloomberg News

U.K. Factory Output Drops at Fastest Pace Since Financial Crisis

June 01, 2012

U.K. manufacturing shrank last month at the fastest pace since the depths of the financial crisis in 2009 as demand plunged.

A gauge of factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, dropped to 45.9 from 50.2 in April, Markit said on its website today. That’s the lowest since May 2009. The median forecast of 30 economists in a Bloomberg News survey was for a decline to 49.7 from an initial estimate of 50.5. A reading below 50 indicates contraction.

The pound fell after the report. The British Chambers of Commerce cut its U.K. outlook today because of the impact of the euro-area debt crisis and said the economy will barely grow this year. While the Bank of England halted expanding stimulus last month, policy makers have said the central bank can resume bond purchases if needed. Measures of manufacturing activity in China and the euro area also fell last month.

“The harsh realities of the weak global economy and sluggish domestic demand are bearing down on U.K. manufacturing,” CIPS Chief Executive Officer David Noble said. “The sector could well become a drag on the U.K. economy as it seeks a return to better health.”

A measure of new orders dropped to the lowest level since March 2009, while job losses were reported for the first time in five months, Markit said.

The pound extended its decline against the dollar after the survey was published and traded at $1.5289 as of 9:34 a.m. in London, down 0.8 percent from yesterday. Government bonds rose, pushing the yield on the 10-year gilt down 4 basis points to 1.531 percent.

Gross domestic product will probably rise 0.1 percent this year, the BCC said in a report, cutting a previous forecast for growth of 0.6 percent. It sees expansion of 1.9 percent in 2013.

“Ongoing problems in Europe will persist for some considerable time and cause difficulties for U.K. businesses,” the lobby group said. “Although there will be minimal growth this year, economic prospects will gradually improve.”

The Bank of England will probably keep its asset-purchase target on hold at 325 billion pounds ($498 billion) next week, according to the median estimate of economists in a Bloomberg News survey. It will also hold its benchmark interest rate at a record low of 0.5 percent, according to a separate survey.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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