U.K. Manufacturing Slump Deepens More Than Economists Forecast

A U.K. index of manufacturing fell in September by more than economists forecast, suggesting parts of the economy may be struggling to shake off a recession.

A gauge based on a survey of purchasing managers fell to 48.4 from 49.6 in August, Markit Economics and the Chartered Institute of Purchasing and Supply said in London today. Economists had forecast a decline to 49.3, according to the median of 28 estimates in a Bloomberg News survey. A reading below 50 indicates contraction.

Data last week showed the economy’s second-quarter contraction was less than an initial estimate, adding to signs growth may have resumed in the third quarter. The Bank of England will maintain its quantitative-easing program this week as policy makers await confirmation the U.K.’s double-dip recession has ended, economists say.

“Overseas sales continue to be hit by the ongoing deterioration in global economic growth, with the euro zone -- the U.K.’s largest export market -- at the epicentre of the weakness,” Markit Chief Economist Chris Williamson said. “In this global economic environment, manufacturers look certain to struggle and the sector is unlikely to act as a driver of economic growth.”

The average index reading for the whole third quarter was 47.7, which is the lowest since the second quarter of 2009, Markit said. Consumer, intermediate and investment goods companies all said that production fell.

‘Uncertain’ for Smiths

“The economic environment remains uncertain,” Smiths Group Plc Chief Executive Officer Philip Bowman said in a statement on Sept. 19 as the world’s biggest supplier of mechanical seals to energy and marine clients reported higher full-year operating profit. “Pressures on government spending” are likely “to constrain those parts of our business with government-funded customers.”

The economy contracted 0.4 percent in the second quarter from the first three months of the year, less than the 0.5 percent previously thought an initial estimate of a 0.7 percent slump. Disposable incomes rose the most since 2009, suggesting the squeeze on consumers is easing, and recent data on services, retail sales and production suggest growth resumed in the third quarter.

Still, economic output is 4 percent below its peak in early 2008, and the slump in manufacturing is continuing while Europe, the U.K.’s biggest trading partner, slides into recession. Gross domestic product in the 17-member euro area fell 0.2 percent from the first quarter, when growth had stalled, the European Union’s statistics office said last month.

The Bank of England will hold its bond-purchase plan at 375 billion pounds ($606 billion) this week, according to all 40 economists in a Bloomberg News survey. Policy makers will also hold the benchmark interest rate at a record low of 0.5 percent, all 50 economist said in a separate poll. The bank announces the decision at noon in London on Oct. 4.

To contact the reporters on this story: Jennifer Ryan in London at jryan13@bloomberg.net; Gabi Thesing in London at gthesing@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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