UK manufacturing declines as world counts on Chinese growth

Updated: 2012-05-02 08:08

By Bloomberg News in London (China Daily)

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'Poorer consumer confidence' in EU to blame for slowdown, experts say

A UK factory index fell more than economists forecast in April and US manufacturing probably slowed as the world economy stayed reliant on China to drive economic growth.

The gauge of British factory output dropped to 50.5 from 51.9 in March, London-based Markit Economics said on Tuesday.

The Institute for Supply Management's US index probably eased to 53 last month from 53.4, according to economists' expectations. China's purchasing managers' index rose to 53.3 from 53.1, with a level above 50 indicating growth.

"China is helping to keep things afloat," said Peter Dixon, global equities economist at Commerzbank AG. "The one thing which markets are concerned about at the moment is weakening global growth."

The reports highlight the divergence in strength between China and the economies of the United States and Europe, which remain dependent on record-low interest rates to aid economic growth.

In Britain, Bank of England officials will debate next week whether they can risk halting stimulus in an economy struggling to shake off a surprise recession.

Export orders

The decline in the UK manufacturing index left it at its weakest level this year, and was led by the sharpest decline in export orders since May 2009.

The pound extended a decline against the dollar after the report and was trading at $1.6199 at 11:37 am in London, down 0.2 percent on the day.

"Manufacturers reported a slowdown in activity, characteristic of continued problems and poorer consumer confidence across the eurozone," David Noble, chief executive officer of the Chartered Institute of Purchasing and Supply, which carried out the UK survey with Markit, said in the report.

"Easing of new orders from the US and Asia is perhaps even more worrying as a potential risk to continued growth," Noble said.

The factory data starts a string of reports on British economic activity, consumer credit and house prices that will set the scene for the monthly Bank of England policy decision next week.

Economists project a 0.5 percent gain in construction spending after a 1.1 percent drop in February, according to a Bloomberg survey. Predictions ranged from a decrease of 0.8 percent to an increase of 1 percent.

While Britain is in its first double-dip recession since the 1970s, rising oil prices threaten to stoke an inflation rate that is above target.

Services, construction

The services and construction reports this week may point to a slowdown in those industries.

Markit's index of services, the largest part of the economy, will probably decline to 54.1 from 55.3, while its construction measure will also fall, economists said in separate surveys.

The Monetary Policy Committee led by Governor Mervyn King will gather on May 10 to determine whether to expand their bond-buying program or halt it at 325 billion pounds ($526 billion).

"For the MPC, the data fog around the economy is thick at the moment, but their confidence must surely be getting rattled that UK activity can make the progress they were forecasting back in February," David Tinsley, an economist at BNP Paribas SA in London, said in a note.

"Committee members could be forgiven for worrying that they may be about to pause on asset purchases at the very moment the economy lurches downwards," Tinsley said.

China's manufacturing

China's manufacturing expanded for a fifth month in April, the country's statistics bureau and logistics federation said in a statement on Tuesday, reducing pressure on policymakers to open the taps on credit in the world's second-largest economy.

The Reserve Bank of Australia lowered its key rate to 3.75 percent from 4.25 percent, the biggest reduction in three years, as the country's manufacturing gauge slid to a seven-month low of 43.9 last month.

Elsewhere in the Asia-Pacific region, South Korea's inflation moderated to a 21-month low in April, with consumer prices increasing 2.5 percent from a year earlier, a Tuesday report showed.