UK manufacturing slide could hit fragile Scottish recovery

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By Andrew Barr
 
Danny Boyle’s Olympic opening ceremony may have celebrated industry and the National Health Service, but English NHS privatisation coupled with today’s news that UK manufacturing is falling at its fastest rate in over three years is painting a picture of British decline.
 
New figures show that in July the UK manufacturing sector contracted more rapidly than at any point since May 2009, falling to 45.4 in the Markit/CIPS Purchasing Managers’ Index (PMI).  Any number below 50 indicates contraction.

The news “again casts doubts on the UK’s prospects”, said James Knightley from the ING.  “A slump on this scale was not expected,” Ross Walker, UK economist at Royal Bank of Scotland, said.

The news follows confirmation of the severity of the UK’s double-dip recession, with the economy contracting by 0.7% in the last quarter, the third successive drop.  Analysts have said that the UK’s weak PMI suggests that there is unlikely to be any economic bounce in the near future.

Over the same period the Scottish economy shrank by much less, and also saw a “welcome pick-up” with manufacturing seeing steady growth.

Commenting on the figures for UK manufacturing, Rob Dobson, a Markit economist said: “The domestic market shows no real signs of renewed life, while hopes of exports charting the course to calmer currents were hit by our main trading partner, the eurozone, still being embroiled in its long-running political and debt crises.”

Lee Hopley, EEF chief economist, added: “There isn’t much positive news to take, with demand being hammered by persistent weakening in eurozone markets and slower growth in other parts of the world.  The weak PMI raises question marks over whether we will see a bounce back in the near future.

“Government will need to return from recess with a lot more clarity around its plans to get growth back on track.”

In Scotland where the economy performed better than the rest of the UK, the month of June saw the seventh employment increase in the past eight months.  July witnessed the Scottish PMI continuing to sit comfortably above the 50 mark.

Speaking last month, Donald MacRae, chief economist at Bank of Scotland, said: “The June PMI showed a welcome pick-up in the Scottish economy with both manufacturing and services recording growth.

“Employment rose across all sectors while cost pressures continued to ease.

“However, the marginal rise in new orders overall and the fall in new export orders illustrate the challenge of maintaining growth in the face of a widespread slowdown in the UK and the Eurozone economies.”

Last week the UK Treasury advertised a new publicly-financed Scotland based role which would require the successful applicant to gather data for UK Ministers in order to promote the economic “benefits” of the Union.

However the growing economic uncertainty surrounding the UK, which could harm the Scottish recovery, and the refusal of Chancellor George Osborne to release funds for infrastructure projects in Scotland is set to make that task increasingly difficult.

The news also comes as the Financial Times is reporting that the UK coalition is giving consideration to nationalising the Royal Bank of Scotland, due to concerns that banks are not lending to businesses.