Contraction in manufacturing activity increases pressure for additional QE - ITEM Club - EY - United Kingdom

Contraction in manufacturing activity increases pressure for additional QE - ITEM Club

Nida Ali, economic advisor to the Ernst & Young ITEM Club, comments on today’s PMI manufacturing figures:

• An improvement in the June manufacturing PMI provides little relief, as a reading of 48.9 points to a continued contraction in activity
• Manufacturing most likely drag on growth in Q2 and we expect GDP to decline for a third consecutive quarter
• The Eurozone crisis is already weighing on the manufacturing sector via weak exports and the possibility of a further escalation cannot be ruled out

“An improvement in the June manufacturing PMI provides little relief. A reading of 48.9 points to continued decline in activity, and further falls in both domestic and export orders suggests that the sector’s performance will remain very weak in the months ahead.
 
“These figures imply that manufacturing was a drag on overall growth in Q2 and we expect GDP to decline for the third consecutive quarter. The Bank was already leaning heavily towards extending QE this week and these figures will provide further pressure.
 
“The Eurozone crisis is already weighing heavily on the manufacturing sector through various channels. In addition to weak export demand from Europe, business confidence has taken a hit and is discouraging firms from investing. Despite massive efforts by the European authorities to contain the crisis, the possibility of a further escalation cannot be ruled out, which could further dent export demand and confidence.”