A desperately disappointing outturn for manufacturing - ITEM Club

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Andrew Goodwin, senior economic advisor to the EY ITEM Club, comments on today’s PMI manufacturing figures:

  • Worrying echoes of the 2008 collapse in activity
  • Collapse in orders points to very weak levels of output in coming months
  • Eurozone crisis is hammering UK confidence

“This is a desperately disappointing outturn, with worrying echoes of the collapse in activity in 2008. The recent trend had been one of a gradual slowdown in activity, but today’s figures show that the problems are on another level altogether. Clearly the escalation of the Eurozone crisis is having a very damaging effect on confidence, not just in the Eurozone itself but also here in the UK.
 
“With both new orders collapsing and backlogs being cleared, this points to a steep decline in production over the next couple of months. Q2 had already promised another quarterly decline in GDP because of next week’s extra bank holiday, but this data hints at an even worse result than we had feared. Next week’s services survey will now be even more keenly awaited, to gauge the extent to which the troubles have infected the service sector.
 
“These figures – and the even poorer results for the Eurozone – highlight how critical the situation has become. Now, more than ever, the policymakers need to come up with a solution that prevents the crisis from spiralling even further out of control.
 
“If next week’s survey shows a similar collapse in services output, then the MPC will find themselves under increasing pressure to loosen policy once more. The only positive point from today’s survey is that inflationary pressures have eased considerably, removing what appeared to be the main impediment to looser policy at the May meeting.”