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Frustration as manufacturing recovery slows

06:00 04 August 2014

Manufacturing in the UK has slowed, figures show

Manufacturing in the UK has slowed, figures show

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Businesses in East Anglia were warned that the hard work continues as an impressive recovery by Britain’s manufacturers slowed last month.

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With new figures pointing to the sector’s weakest performance in a year, Suffolk Chamber warned that the economic recovery as a whole remains fragile.

Data from the closely watched Chartered Institute of Purchasing and Supply (CIPS)/Markit purchasing managers’ index survey for July gave a weaker-than-expected reading of 55.4, down from 57.2 a month earlier - but still well above the 50 threshold indicating growth.

Economists said they were not overly worried by the figure, which comes on the back of one of the sector’s best quarters in two decades.

However, it does raise fears that businesses are starting to feel the impact of sterling’s strength, as well as jitters over looming interest rate rises and a drag on some European export markets due to the crisis in Ukraine.

The Bank of England’s monetary policy committee is due to vote on interest rates next week, with most experts predicting no change from 0.5%.

Rob Dobson, senior economist Rob Dobson at business survey provider Markit, said: “Policymakers were expecting growth to slow slightly from the impressive rate seen in the first half of the year, in part due to expectations of higher borrowing costs next year.

“Importantly, the rate of growth remains historically very strong to help contribute to yet another robust expansion of the economy in the third quarter.”

CIPS said that production and new orders both continued to rise at a robust pace, albeit with the pace of expansion cooling from earlier in the year.

Growing demand from developing economies in the Middle East, Africa and Asia meant exports showed the 16th consecutive month of growth.

Job creation also remained strong - but the rate of increase in staffing levels slipped to a nine-month low, CIPS added.

Capital Economics analyst Samuel Tombs said the sector should still make a “punchy” contribution to GDP growth in the second half of the year.

He added: “The survey indicates that the sector’s recovery is broad-based, with consumer, investment and intermediate good producers reporting similar rates of growth in output and even exports orders growing at an above average rate despite the pound’s appreciation.”

John Dugmore, chief executive of Suffolk Chamber of Commerce said it had seen some “excellent growth”.

“It is frustrating that manufacturing growth has slowed down.” he admitted.

“What’s important though is that growth remains above the important 50% for manufacturing.

“As with any economic figures businesses will want to see the trend and we have seen some excellent growth in recent months.

“What today’s figures do tell us is that the economic recovery as a whole remains a fragile one and the hard work by firms big and small across Suffolk continues.”

David Burch, director of policy at Essex Chambers of Commerce, urged policymakers to think carefully in order to avoid a reversal of fortunes in the economy.

“Although some businesses are doing better than others we are still seeing positive signs of recovery from members across all sectors of the economy,” he said.

“However we would urge politicians and policy makers to think carefully about future decisions, especially on interest rates, to avoid pushing the hard earned growth back into recession.”

Luke Morris, chair of the Suffolk branch of the Institute of Directors (IoD), said an IoD survey revealed two thirds of its members expect to give pay rises in line with or above inflation in the coming year, and tied generally improved performance.

“There is insufficient appreciation that we are experiencing extraordinary monetary policy at the moment. Such extraordinary policy just cannot continue forever,” he added.

“Looking ahead two years, we would like to be reaching a point where monetary policy could again be effective, which means interest rates in the range of 3-4%. The economic recovery is strong enough that the time has come to be making progress towards that medium term goal.

“Only once monetary policy has been normalised, can interest rates be an effective policy tool again.

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