Shockingly weak. That’s the only way to describe news highlighting the continuing struggles of Britain’s manufacturers last month.
It’s easy to see why the health check of industry from Markit/CIPS raised eyebrows. The snapshots of the three most important sectors of the economy – manufacturing, construction and services – are closely watched because they are the first evidence of the state of the economy in the month and they look forward rather than backward.
So while City analysts were taken aback by the halving of growth in the first three months of 2015 they comforted themselves with the thought that the slowdown was a blip. They were looking for a pick-up in the Markit/CIPS purchasing managers’ index to show that the weakness since the turn of the year had been a temporary aberration.
Instead, the PMI weakened sharply. Manufacturing is growing – just about – but only because of demand for consumer goods. Companies making investment goods or intermediate goods (products used to make things by other manufacturers) are having a tough time.
What does this tell us? Firstly, the economy has come off its sugar-rush high. Growth was boosted in 2013 and early 2014 by a booming housing market. Since the Bank of England reined in mortgage demand, the pace of activity has slackened. This is despite more than six years of 0.5% interest rates and the halving of oil prices in the second half of 2014.
Secondly, the economy remains dangerously unbalanced. There has not been the shift to manufacturing, investment and exports promised by George Osborne back in 2010. The strong pound is hitting sales of goods to Europe and companies are not investing. Consumer demand remains the main source of growth.
Finally, the government’s claim to have turned round the economy in the past five years is bunk. The Conservatives chose this week to focus on the economy in the expectation they could point to signs of success. Their timing could not have been worse.
First it was the halving of the growth rate. Now the news is that the outlook for UK manufacturers is deteriorating fast. This has not been a good week for the government’s claim to have turned round the economy.
