The downturn in UK manufacturing is deepening and export sales worsening—leaving the Bank of England's hope that overseas markets will pull the economy out of recession looking increasingly forlorn.
Both industrial output and employment are falling at record rates, according to the latest figures from the Chartered Institute of Purchasing and Supply (Cips). Not only are domestic orders weak, but overseas sales are collapsing as, despite the weak pound, UK exports struggle to compete in contracting foreign markets.
Roy Ayliffe, a Director at Cips, said:"The latest data confirms the degeneration of the UK manufacturing sector as it contracted at a rate evocative of the dire conditions seen in the early 1980s."
The grim survey results will add to the pressure on the Bank of England to make further interest rates cuts. Although rates are already at an all-time low of 1 per cent, further reductions are expected when the Bank's Monetary Policy Committee meets tomorrow. Experts predict a 50 basis point cut, taking the rate down to just 0.5 per cent, alongside an announcement of the start of quantitive easing – the economists' term for injecting new money into the economy.
But the problem is that the Bank is running out of options. Sterling has been allowed to fall sharply in the hope that it will boost UK exports, which in turn will lead the economy out of recession. It is a tactic which has worked a number of times in the past, most recently in 1992, when the UK fell out of the Exchange Rate Mechanism. But with recession biting hard on economic activity across the world, even a weak currency cannot make up for the massive fall in demand – as evidenced by the stagnation in the UK car industry, which is heavily export-led.
The Cips survey findings are consistent with an annual rate of production decline of 12 per cent and employment contraction of around 30,000 jobs per month – re-iterating the gloomy message from the EEF earlier in the week. The manufacturers' lobby group is predicting 140,000 redundancies this year.