he said that despite looming spending cuts and a bleak outlook for consumer spending he remained ‘cautiously optimistic’ about the country’s growth prospects.
“Employment is growing at the fastest pace for over a decade, confounding predictions that the economy cannot generate private sector jobs… Manufacturing is picking up and exports are recovering thanks to increasing global demand,” Osborne said in a speech to reporters at Bloomberg’s headquarters in London.
Fastforward to August 2011 and new data suggest the opposite is now true: manufacturing output is slowing down dramatically and new and export orders ate tapering off sharply due to as the global picture deteriorates rapidly.
Today’s August manufacturing PMI was a shocker. The headline number dropped to its lowest level in 26 months and the employment index suggested factories are shedding staff.
The key sub-components of the survey made for even more dismal
reading.
The number of new export orders declined sharply with the level of new work received from overseas clients falling at its fastest pace since May 2009.
Rob Dobson, senior economist at Markit said that the second half of 2011 has so far seen the UK manufacturing sector switch into reverse gear.
“The sudden and substantial drop in new export orders is particularly worrisome, with UK manufacturers hit by rising global economic uncertainty, just as austerity measures are ramping up at
home,” he said.
And the survey looks worse at second glance, according to two leading UK economists.
Malcolm Barr, Chief UK Economist at JP Morgan said that he was particularly worried about the output reading which fell two points ton48.9 – a level consistent with the official data contracting at a roughly 1.5% annualised rate.
If realised in the official data, he would have to downgrade his third quarter growth forecast.
“Our forecast for 3Q GDP at 0.4% q/q sa assumes manufacturing output rises 0.8% in the quarter,” he said.
“For policymakers who have invested much in export, manufacturing and investment-led growth, the survey should make sobering reading,” he added.
George Buckley, Chief UK Economist at Deutsche Bank said that, the falling employment index, which fell below its expansion/contraction point, is startling.
“While the labour market has performed far better than we might have expected given the contraction in GDP during the recession, this highlights the risk that firms which have hoarded labour might be finally forced to shed jobs given the slower-than-expected recovery,”
he said.
But while Buckley says the manufacturing PMI makes for grim reading, he the thinks the currently more elevated level of the services index could make it more vulnerable to the slowdown which seems to be underway.
“There is therefore more scope for a sharper fall here; given the importance of the service sector to the economy as a whole such a move down could have a sizable negative impact on the composite PMI,” he said. Read More...
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