British manufacturing activity unexpectedly eased sharply to a seven-month low in April amid weaker demand, while central bank data showed that consumer credit grew strongly, suggesting that the fragile economic recovery was largely being led by consumption.
Poor figures for the factory sector coupled with weaker-than-expected first quarter GDP may prove a severe blow to the Conservatives just days ahead of the May 7 election.
The seasonally adjusted Markit/CIPS Purchasing Manager’s Index fell to 51.9 in April from March’s 54, which was revised from 54.4. Economists had expected the index to rise to 54.6.
A PMI reading above 50 indicates expansion in the factory sector, which has now grown for 25 successive months.
“A key challenge for the next government is to revive manufacturing and help it at least regain its
pre-crisis peak, as any signs of rebalancing the economy towards manufacturing and exports remain frustratingly elusive,” Markit Senior Economist Rob Dobson said.
Meanwhile, figures from the Bank of England showed that consumer credit grew by GBP 1.242 billion from the previous month, marking the biggest growth since February 2008. That exceeded the GBP 0.8 billion increase forecast by economists.
Lending to businesses also grew strongly by GBP 2.719 billion, which was the biggest gain since the series began in May 2011, the central bank said.
“Strong rises in real incomes this year should ensure that a pick-up in credit growth is sustainable,” Capital Economics said.
The Markit survey showed that overall output growth was dampened by the contraction in intermediate goods sector, while the consumer goods sector emerged a stand out performer with substantial growth in output and orders.
The base of the upturn narrowed and became further skewed towards the consumer goods sector, Markit said.
Demand was driven by orders from the domestic market as the booking from overseas fell. The sterling euro
exchange rate was also hitting competitiveness in the U.K.’s largest trading partner, the Eurozone, the survey said.
Employment rose for a twenty-fourth straight month, albeit modestly, and price pressures remained on the downside.
The U.K. economy grew 0.3 percent in the first quarter, which was the slowest pace of expansion since the fourth quarter of 2012, preliminary estimates from the Office for National Statistics revealed on Tuesday.
“The pick-up in bank lending to businesses in March supports hopes that the UK economy is still well placed for decent growth, and fuels suspicion that recent weaker data primarily reflects increased caution ahead of the uncertain general election,” IHS Global Insight economist Howard Archer said.
“The jump in unsecured consumer credit in March suggests that consumer are still pretty confident about life although it may fuel concern that consumers will pile up debt again to fund spending.”
The material has been provided by InstaForex Company – www.instaforex.com