Manufacturing in steep fall
Bank likely to cut interest rate as output slumps
Business confidence also fell sharply after the Brexit vote. suggesting that a recession might still loom in the months ahead.
Factory output for July was at its lowest since February 2013 and sterling plunged further, adding to costs of imported raw materials and the likelihood that inflation will rise.
The pound fell 0.22% against the dollar to $1.32 and by 0.24% against the euro to €1.18.
The latest downbeat numbers in the Markit/CIPS UK manufacturing purchasing managers’ index(PMI) add to cautionary forecasts from the CBI and EY.
Rob Dobson, senior economist at Markit, said the survey came “amid increasingly widespread reports that business activity has been adversely affected by the EU referendum”.
He added: “The downturn was felt across industry, with output scaled back across firms of all sizes and across the consumer, intermediate and investment goods sectors, although exporters did report a boost from the weaker pound.”
Figures released last week showed the UK economy grew by 0.6% in the three months to the end of June.
Martin Beck, senior economic adviser to the EY Item Club, said: “There was little consolation from the detail of July’s survey. Output contracted across the consumer, intermediate and investment goods sectors.
“Employment in manufacturing declined for the seventh month in succession and input-price inflation rose to a five-year high off the back of sterling’s weakness and higher commodity prices.
“The one bright spot was a rise in export orders, no doubt helped by the decline in the pound.”
Most economists now expect a 0.25% rate cut on Thursday from the current 0.5%. However, the most recent reading from the Bank of England said there was no sign of a post-Brexit slowdown.
Even a cut would take at least a year to work its way into the economy, so some analysts believe it will not worth undermining the value of savings.
TUC General Secretary Frances O’Grady said: “Today’s report of job losses in manufacturing is deeply concerning. It’s very clear now that the Brexit vote has put the economy under pressure and workers are at risk of paying the price.
“The government should not wait any longer to see which way the wind is blowing. We need an urgent package of public investment to keep the economy moving.
“The TUC has published an action plan to protect jobs and growth. The government must give the go-ahead for a third runway at Heathrow, bring forward major new infrastructure projects like high-speed rail and announce a big expansion in housebuilding.”