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U.K. Manufacturing Slump Deepens as Export Orders Decline

U.K. Manufacturing Slump Deepens More Than Economists Forecast
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. Photographer: Paul Thomas/Bloomberg

Oct. 1 (Bloomberg) -- U.K. manufacturing shrank more than economists forecast in September and export orders declined for a sixth month, 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, and Bank of England Markets Director Paul Fisher was quoted by the Sun newspaper as saying that the third-quarter will be “very strong.” The central bank will maintain its quantitative easing program this week as policy makers await confirmation the 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. “Manufacturers look certain to struggle and the sector is unlikely to act as a driver of economic growth.”

Overall new orders increased for the second month in September, though the rate of growth was “again only marginal,” Markit said. Consumer, intermediate and investment goods companies all said that output contracted, while payrolls fell for a fifth straight month.

‘Uncertain’ for Smiths

The pound slipped 0.1 percent against the dollar today and traded at $1.6153 as of 10:52 a.m. in London.

The average manufacturing index reading for the third quarter was 47.7, which is the lowest since the second quarter of 2009, according to Markit.

“The economic environment remains uncertain,” Smiths Group Plc Chief Executive Officer Philip Bowman said in a statement on Sept. 19.

Britain’s economy shrank 0.4 percent in the second quarter, less than the 0.5 percent previously estimated. 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.

‘Loss of Momentum’

The factory survey “is at levels which historically have been associated with a contraction in manufacturing output,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc. “None of this should prevent a bounce in third-quarter gross domestic product -- that is largely a base-effect issue -- but, more significantly, will be seen as heightening the risks that a loss of momentum will translate into weak economic growth in the fourth quarter.”

U.K. economic output is 4 percent below its peak in early 2008, and the slump in manufacturing is continuing while Europe, Britain’s biggest trading partner, slides into recession. GDP in the 17-member euro area fell 0.2 percent from the first quarter, when growth had stalled.

Separate reports today showed euro-area manufacturing shrank for a 14th month in September. In China, a factory index was at 49.8 for September, the first time that it has been below 50 for two straight months since 2009.

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. It will also keep the benchmark interest rate at a record low of 0.5 percent, a separate poll showed. 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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