UK manufacturing output expands, euro area crisis affect exports

08-03-2010 06:47

UK manufacturing output expanded last month, while the euro area woes affected exports. The Markit/ Chartered Institute of Purchasing and Supply (CIPS) manufacturing PMI dropped to 57.3 in July from 57.6 in the previous month. This reading exceeds expectations of 57 and approaches the highest level in 15 years, posted last May. Nevertheless, exports orders dropped to 50.8 from 51.8. Some market watchers fear that this is an alarming trend and could mean that export growth has slowed down.

Sovereign debt crisis

“The decline could be the result of the Pound’s recent bounce, while it also raises fears about the strength of activity in economies of main trading partners,” James Knightley, ING chief UK economist, commented. Europe, the UK’s key trade partner, is predominated by a sovereign debt crisis. Nevertheless, the decline in trade from Europe was partly the result of strong demand from Asia and America, according to the report.

Manufacturing output

The data did not have a major impact on financial markets. It didn’t change the predominating expectation that growth will decelerate due to the government’s severe measures. “The situation remains rather sturdy. UK exports dropped for several months but it’s still well above its long-term average. It will probably ease but it is expected to remain robust in the following months,” George Buckley, economist at Deutsche Bank, noted.

Budget deficit

The UK has presented severe measures to decrease an huge budget deficit by 2015. These measures raises anxiety that they could jeopardize the recovery. The economy expanded at its fastest pace in four decades in the second quarter. Mervyn King, the Governor of the Bank of England, recently forecasted that the economic growth may decelerate.

Increased workforce

The pace of growth of goods bought by producers fell to the lowest level in eight months. Inventories of bought goods also eased. In spite of muted demand for exports, demand for new orders remained strong. In combination with manufacturing, this stimulated companies of all types and sizes to expand their workforces.

Price inflation

“We expect a calculated and subdued pace of growth. In comparison to the record lows posted during the recession, it’s still a positive development. Input and output price inflation also dropped sharply,” CIPS’ CEO David Noble commented.