Photographer: Simon Dawson/Bloomberg

U.K. Factories Disappoint as Growth Cools to Three-Month Low

  • Consumer goods were key driver of production and new orders
  • Subdued costs mean no pressure on BOE to raise interest rates

U.K. manufacturing unexpectedly cooled in December, suggesting it made little contribution to the economy in the final quarter of 2015.

Markit Economics in London said on Monday its factory index fell to a three-month low of 51.9 from a revised 52.5 in November. Economists had forecast an increase to 52.8 from an initially reported 52.7.

Source: Markit Economics.

The weaker Purchasing Managers Index followed a report from China showing that manufacturing there shrank for a fifth month in December. That sent global stocks lower, with China’s CSI 300 Index dropping 7 percent, setting off a circuit-breaker that suspended trade. The FTSE-100 Index declined 2 percent as of 10:15 a.m. London time.

In the U.K., Markit’s survey showed that export orders rose for a fourth month, though at the slowest rate since September. Input prices fell at a “sharp pace” because of lower oil costs and a stronger pound.

Sterling also featured in a survey of companies by Lloyds Banking Group published on Monday, with many saying it’s having a negative impact on exports.

“U.K. manufacturing ended 2015 on a disappointing note,” said Rob Dobson, senior economist at Markit. “Industry will make, at best, only a marginal positive contribution to broader economic growth in the final quarter of the year.”

Dobson also said that cost pressures remain “heavily on the downside.”

“If this ongoing mix of subdued growth and weak price pressures remains prevalent elsewhere in the economy, the Bank of England will likely continue to push any potential rate increase later into 2016,” he said.

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