Sharp fall in manufacturing output fuels recession fears

Official data has revealed that manufacturing production fell in May triggering fears that the UK economy is heading towards a recession.

The figures were much worse than anticipated as output fell by 0.5% during the month, while the wider measure of industrial production, including energy and water output, dropped 0.8%.

The latest fall in manufacturing left the level of its output lower than it was compared with 8 months ago.

Furthermore, its growth rate in the latest 3 months, compared with the previous 3 (a barometer seen as a good guide to underlying trends) turned negative this year for the first time at minus 0.2%.

Paul Dales, UK economist at Capital Economics, said the industrial part of the economy is already in recession. As a result, all other sections of the economy appear to be heading down as well, meaning the UK economy is heading nearer to recession.

Howard Archer, chief economist at Global Insight, added that the doom and gloom surrounding the UK economy is never-ending and the downturn seems to be depending appreciably.

The figures will put pressure on the Bank of England’s Monetary Policy Committee to cut interest rates this week.

Last month, it was widely believed by analysts that interest rates would have to rise in order to manage runaway inflation.

It is believed by many that the nine-member committee will vote three ways, with one third voting for a cut, one third voting for a rise while the other voting for no change.

Steve Radley, chief economist at the Engineering Employers’ Federation, said interest rates should be kept at 5%. The slowing economy and wage moderation should help to prevent inflation.

However, if the current economic climate continues to gather pace, the Monetary Policy Committee must be prepared slash rates again, concluded Mr Radley.

Since December, the Bank of England have cut interest rates 3 times.

Discuss this in the Finance Markets forums

Story link: Sharp fall in manufacturing output fuels recession fears