UK manufacturing suffered an unexpected sharp slowdown in new orders last month, triggering fears that the one bright spot in the economy could be faltering.
The latest Markit/CIPS manufacturing PMI survey shows growth at its weakest in seven months in April with manufacturers blaming dwindling domestic demand. The Japanese tsunami and earthquake also disrupted supply chains.
The headline index of 54.6 – down from 56.7 in March and well below forecasts – along with a clutch of other gloomy economic news on household spending and job opportunities, has fuelled speculation that the Bank of England's Monetary Policy Committee (MPC) will peg interest rates at the 0.5% when its meets this week. Most economists now believe that rates will stay at their historic low until at least September, despite inflation stubbornly sticking at double the Bank's target of 2%.
"It does add further grist to the mill to the argument to keep interest rates on hold," Philip Shaw, chief economist at Investec, told Reuters.
"It's unclear whether the drop in the index reflects a genuine slowdown in demand for manufactured goods or whether it reflects a degree of supply disruption arising from the tsunami."
On the plus side, the survey shows employment in manufacturing still rising while inflationary pressures appear to be declining.
Chris Elias, Barclays corporate director in Swindon, believes the sector remains on track, despite the PMI survey.
"Manufacturing has experienced an unexpectedly strong first quarter, which saw a spike in restocking, cementing the fact the industry is 'back in business',” he said.
"The headwind now facing manufacturers, as we enter the new tax year, will be the fiscal changes impacting household spending and the prospect of impending interest rate hikes. What manufacturers now need is a steady and sustainable recovery and that certainly remains evident within our client base."
Meanwhile a report today from financial services firm Deloitte shows UK consumers face a drop in disposable income this year equivalent to about £780 per household. It blamed government tax rises and spending cuts, with higher commodity prices pushing up inflation.
The report predicts it will take until 2015 for households' disposable incomes to get back to their 2009 peak.
And data from recruitment agency Reed shows the number of job opportunities in the private sector slipped further in April.
The firm's index of vacancies fell three points, or 2%, compared with March, which was itself down on February. However, demand is still up 22% from a year ago.
