UK economy hit by fresh blows

Ben Southwood
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THE UK’S recession looks set to deepen even further after manufacturing output fell in July at its fastest rate for more than three years, according to an influential survey published yesterday.

It came as fears mounted that the Olympics are failing to deliver the boost that some economists had hoped for – and in fact are reducing the overall levels of activity in the UK’s struggling economy.

Official data shows the economy has contracted for the last three quarters, but analysts had argued falling unemployment showed those official numbers could be excessively pessimistic, with factors like the Jubilee bank holidays distorting the picture.

But the new survey data have shattered hopes, and show that the recession could even be deepening further.

Markit’s PMI (purchasing managers’ index) for July crashed to 45.4 in July, from 48.4 in June – well below the 50 mark which shows no change in output, indicating an accelerating fall.

“The July PMI survey suggests 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,” said Rob Dobson, senior economist at Markit.

Negative demand in the economy was highlighted yesterday by the decline in house prices shown by data from Nationwide. Its house price index saw the average house price fall 2.6 per cent in the year to July – the biggest drop since the middle of the financial crisis in August 2009. Analysts put the fall down to weak activity, suggesting consumers are waiting for new easing measures to kick in before they borrow more.

City analysts now believe this onslaught of new data could overturn hopes that the GDP fall exaggerated the weakness in the economy.

“Some commentators have been arguing that the previous resilience of the PMIs somehow proved that the economy is not as soft as the GDP figures indicate – that argument will now probably fade away,” said Michael Saunders at Citi.

The fall was made up of the highest decline in production for 40 months, combined with the fastest drop in new exports since February 2009. Employment increased only marginally, while backlogs declined at the sharpest pace since March 2009, implying firms face few new orders.

Meanwhile concerns are growing that far from having a positive effect on the economy, the Olympics have actually put visitors off a trip to the capital – Experian figures yesterday showed that retail footfall in the West End is down 4.5 per cent on a year ago.

The decision by City A.M.’s shadow monetary policy committee (MPC) to hold fire on new measures also reflects economists’ concern to assess the affect of current policy measures before printing even more money.

Analysts expect that the Bank of England will also adopt a “wait and see” approach when it decides on monetary policy today.