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U.K. Factories Weaken as World Relies on China Growth

U.K. CIPS Manufacturing Declined More Than Expected in April
A gauge of factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, dropped to 50.5 from a revised 51.9 in March, Markit said on its website today. Photographer: Chris Ratcliffe/Bloomberg

A U.K. manufacturing index fell more than economists forecast in April to show its weakest growth this year as export orders declined the most since May 2009.

A gauge of factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, dropped to 50.5 from a revised 51.9 in March, Markit said on its website today. The median forecast of 27 economists in a Bloomberg News survey was for a decline to 51.5 from an initial estimate of 52.1 in March. A reading above 50 indicates growth.

Bank of England officials will decide on May 10 whether to extend stimulus amid conflicting signals on the economy. While Britain is in its first double-dip recession since the 1970s, rising oil prices threaten to stoke an inflation rate in its third year above target. Factory output, which accounts for about 10 percent of gross domestic product, is being crimped as the euro-area debt crisis hits export demand.

“Manufacturers reported a slowdown in activity, characteristic of continued problems and poorer consumer confidence across the euro zone,” CIPS Chief Executive Officer David Noble said in the report. Also, an “easing of new orders from the U.S. and Asia is perhaps even more worrying as a potential risk to continued growth, as these have helped to balance out weaker demand in recent months.”

The pound declined against the dollar and was trading at $1.6221 as of 4:17 p.m. in London, down 0.1 percent on the day. The yield on the 10-year U.K. government bond fell 1 basis point and was at 2.11 percent.

U.S. Expansion

U.S. manufacturing unexpectedly expanded in April at the fastest pace in 10 months. The Institute for Supply Management’s factory index climbed to 54.8 last month, exceeding the most optimistic forecast in a Bloomberg News survey, from 53.4 in March, the Tempe, Arizona-based group’s report showed today. The median forecast in the Bloomberg survey called for a drop to 53.

China’s manufacturing expanded for a fifth month in April, reducing pressure on policy makers to open the taps on credit in the world’s second-largest economy. The Purchasing Managers’ Index rose to 53.3 from 53.1 in March, China’s statistics bureau and logistics federation said in a statement today. That’s the highest reading in a year and compares with the 53.6 median forecast in a Bloomberg News survey of 27 economists.

April’s U.K. slowdown was centered on producers of consumer goods, Markit said. Manufacturers, under pressure from rising energy costs, raised prices at their fastest pace in seven months.

Today’s factory data starts a string of reports on U.K. economic activity, consumer credit and house prices that will set the scene for the monthly Bank of England decision.

BOE Decision

The Monetary Policy Committee led by Governor Mervyn King will gather next week to determine whether to expand so-called quantitative easing or halt it at 325 billion pounds ($526 billion). They will start their two-day policy meeting on the afternoon of May 9 and announce the decision at noon the following day.

While GDP has fallen for the past two quarters, consumer-price growth accelerated in March for the first time in six months to an annual 3.5 percent. Inflation has been above the central bank’s 2 percent target every month since December 2009.

King is due to speak in London tomorrow when he delivers a public lecture hosted by the British Broadcasting Corp. at 9 p.m. He will also take questions from the audience.

The services and construction reports this week may point to a slowdown in those industries. Markit’s index of services, the largest part of the economy, will probably decline to 54.1 from 55.3, while its construction measure will also fall, economists said in separate surveys.

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