UK manufacturing: what the economists say

Britain's manufacturing recovery is running out of steam , with activity in the sector hitting a 10-month low in September. Here is what economists think of the survey data: Shehan Mohamed, economist at the Centre for Economics and Business Research Today's figures highlight that economic growth in the UK will slow in the third quarter after the 1.2% growth in Q2. Moreover, evidence from the eurozone points to a noticeable slowdown in growth, too. After the trampoline bounce from firms restocking after aggressively running down inventory levels through the recession, the global economy, particularly in the west, has lost momentum. The national accounts showed business investment in the UK declined in Q2 and consumer spending faces several headwinds. As such, the UK is looking towards export growth to boost the recovery; but the PMI data shows export orders continue to soften. As such, we think the likelihood of additional quantitative easing has increased once more – £50bn of additional asset purchases in the first quarter of 2011 could be pencilled in. Lee Hopley, EEF chief economist Slightly slower growth in manufacturing activity was to be expected following the rapid rebound in the first half of the year – though the overall picture remains one of recovery on the back of a pick-up in world trade. While the drop in export orders adds a note of caution a bumpy global recovery should be expected after such a deep, credit-driven recession. Vicky Redwood, senior UK economist, Capital Economics September's UK CIPS/Markit report on manufacturing provided further evidence that the recovery in both the industrial sector and the wider recovery is fading fast. On the whole, then, the latest data supports the judgment of at least some monetary policy committee members that, while the upside risks to inflation and inflation expectations are yet to crystallise, the downside risks to activity and inflation are growing. Hetal Mehta, UK Economist, Daiwa Capital Markets The fall in the manufacturing PMI does not come as a big surprise, given the signs of slowing manufacturing growth around the world. Although new orders growth picked up, the sharp fall in August means it is still well down on growth seen in the earlier part of the year. And even more worrying is the fall in export orders, which highlights both the fragility of external demand and the failure of UK firms to take advantage of a weaker currency. Although the services PMI will give an even better indication of economic activity, given its larger share of the economy, it seems that the renewed economic slowdown is well under way. Howard Archer, chief UK and European economist, IHS Global Insight The softer manufacturing purchasing managers' survey for September adds to the evidence that growth slowed appreciably in the third quarter. While the survey still indicates clear expanding manufacturing activity, it nevertheless points to a significant loss of momentum from the peak level seen in the second quarter. Furthermore, stock rebuilding can only support activity fro a limited period. With service sector actor activity also now seemingly faltering , it is evident that GDP growth in the third quarter will have slowed substantially from the 1.2% quarter-on-quarter rate achieved in the second quarter. This makes it a stone-dead certainty that the Bank of England will keep interest rates down at 0.5% at the conclusion of its October monetary policy committee (MPC) next Thursday. It also maintains pressure on the Bank of England to consider reviving quantitative easing, although we expect them to hold fire for the time being at least. Duncan Higgins, senior analyst at Caxton FX The data simply fuels the argument that additional monetary easing is necessary. Activity in the manufacturing sector has been on the decline for four straight months, which does not bode too well for third-quarter growth. Quantitative easing is likely to be the hot topic at the next MPC meeting on 7 Oct and a decision in favour would send sterling through the floor. It is far from a foregone conclusion but should the figures continue to paint this picture of a recovery losing steam, the argument against QE will become ever harder to defend.