UK manufacturing sector offer a small ray of hope |
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Sun, 03 Jul 2005 14:05
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LONDON: The beleaguered British economy has some consolation coming its way. The latest assessment of the country's manufacturing sector indicates that it is in shrinking mode though, but not at the rate predicted by economists.
The Chartered Institute of Purchasing and Supply (CIPS) revealed Friday its purchasing managers' index has risen to 49.6 in June from 47 in May and against a projected figure of 48. However, figure above only constitutes expansion, and when it is below 50, it means contraction.
Analysts now say Bank of England may not consider it an emergency situation to go ahead with an immediate interest rate cut. It can wait till August although there has been demands for such a corrective step to pull out the economy from a state of stagnation.
Meanwhile, the Office for National Statistics (ONS) had on Thursday revised downwards the growth rate for the first three months of the year to just 0.4%. The figures, however, showed that business investment in the U.K. during the first quarter grew by 0.1% on the previous quarter and 2.5% on the same period in 2004.
The central bank's monetary policy committee is meeting next week to take stock. It had left the interest rates unchanged at 4.75 per cent at its last month's meeting though two of its nine members voted in favour of a cut.
The CIPS index indicates the manufacturing sector is still in decline although the survey showed that price pressures were subdued.
Strong competition is cited as reason for reduced prices at the factory gate for a second consecutive month. Fresh orders and new export business, however, helped a modest recovery.
The CIPS report said, "Operating conditions in the U.K. manufacturing sector deteriorated throughout the second quarter of 2005. Companies reported that production had been lowered (in part) to prevent the build-up of finished goods inventories."
Two representatives organisations, Engineering Employers Federation (EEF) and Confederation of British Industry, have recently said there is a lack of confidence in the country's manufacturing sector. EEF had urged an immediate cut in the interest rates.
Chris Williamson of NTC Research, who was associated with the CIPS survey, said the data is in consistency with the view that rates are in a cut zone now.
"The manufacturing PMI readings were sufficiently weak to justify a rate cut although there are other factors to bear in mind.
"It's likely that higher oil prices will feed through in the next month or so and that is going to have an inflationary effect that will cause concerns."
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