April 2, 2013 11:51 am

Data confirm fragile state of UK economy

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
An employee works on a component for an Airbus SAS aircraft, a unit of European Aeronautic, Defence & Space Co. (EADS), at GKN Plc's Aerospace factory in Filton, U.K., on Wednesday, Sept. 12, 2012. GKN completed its acquisition of Volvo AB's aircraft-engine unit, Volvo Aero, for 633 million pounds to tap demand for lightweight composite parts and narrow the gap with competitors such as Safran SA, earlier this month.©Bloomberg

The economy’s fragility was underlined on Tuesday by data showing lending to households and companies was contracting while manufacturers were still grappling with falling output and orders.

The fresh data came as monetary policy makers at the Bank of England prepared to vote on Thursday over whether to pump more stimulus into the economy. Signals have been mixed in recent weeks, with Tuesday’s figures taking some of the gloss off a large business survey on Monday that suggested growth was starting to resume this year.

Tuesday’s Markit purchasing managers’ index, an unofficial gauge of the manufacturing sector’s health, implied factory activity fell in March for the second successive month.

The index reading of 48.3, derived from a survey of manufacturers, was slightly higher than in February but still below the 50 mark that separates expansion from contraction.

Respondents said output fell in March at the fastest pace since July last year, along with a further decline in new orders and employment.

Separately, Bank of England data showed that lending to households and companies contracted slightly in February in spite of the central bank’s efforts to increase the flow of credit to the real economy via its Funding for Lending Scheme.

“All this still points to a very subdued economy, which will keep the pressure on the Bank of England to do more to offset the UK’s tight fiscal stance,” said James Knightley, an economist at ING.

For the past two months, Sir Mervyn King, the central bank’s governor, has pushed for more quantitative easing, but he has been outvoted by his committee. Most economists expect the BoE to hold monetary policy steady again this week, though they think the vote could be close.

Rob Dobson, an economist at Markit, said data implied manufacturing output declined again in the first quarter of the year. Though the sector only accounts for about 10 per cent of the economy, its poor performance contributed to the economy’s 0.3 per cent contraction in the final quarter of last year.

Another contraction in the first quarter would put the country back into technical recession for the third time in five years.

“The onus is now on the far larger service sector to prevent the UK from slipping into a triple-dip recession,” said Mr Dobson. “The ongoing weakness of manufacturing and the hard to estimate impact of bad weather on first-quarter growth suggest that this is still touch-and-go and that any expansion will be disappointing nonetheless.”

Meanwhile, the BoE data showed that lending to households and companies, based on the measure the central bank is targeting with its Funding for Lending Scheme, fell by about £2bn in February.

The number of mortgage approvals for house purchases was 51,653, lower than the average of 52,395 over the previous six months. However, net mortgage lending rose about £900m, more than the average £400m or so over the previous six months, and there was an increase in unsecured consumer lending.

“The BoE data . . . suggest that credit and housing remain weak, and that despite the FLS, credit availability for small firms remains particularly poor,” said Michael Saunders, an economist at Citi.

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in

SHARE THIS QUOTE