GEORGE Osborne’s hopes of a manufacturing-led recovery were dealt a blow yesterday, after a survey suggested factory output had contracted in July for the first time in two years.
The manufacturing purchasing manager’s index (PMI) fell to 49.1 in July from a revised 51.4 in June – the first time it has been below the 50 mark that separates contraction from expansion since July 2009, when the UK was still in the depths of recession.
Although the manufacturing sector accounts for just 13 per cent of economic output, it recovered strongly after the slump as companies restocked and a weak pound boosted exports.
Economists said the survey did not bode well for economic growth in the third-quarter, especially as there were no obvious one off factors like the Royal Wedding to blame.
Labour was quick to seize on the survey as proof that the coalition does not have a plan for growth, arguing that it is cutting too far, too fast.
Osborne’s plans for growth were also dealt a blow yesterday from the International Monetary Fund (IMF). The IMF maintained its forecast for UK economic growth of 1.5 per cent this year and 2.3 per cent in 2012, but warned the “mandate is met with a very slim target”.