Manufacturing survey strengthens rates call

Nov 4 2008 by Peter McCusker, The Journal

THE UK manufacturing sector has continued to contract with output falling in October for the sixth month in a row.

The latest purchasing managers’ index for the industry showed a reading of 41.5 – where a score below 50 indicates contraction. The result – though slightly above gloomy City forecasts – keeps the sector pinned close to the 17-year lows of 41.2 reached in September.

IHS Global Insight’s chief UK and European economist Howard Archer said the survey strengthened the “already compelling” case for deep rate cuts from the Bank of England on Thursday.

Mr Archer, who said there was “a very strong case” for a full 1% cut, said: “The best thing that can be said about the survey is that it was not quite as dire as feared.”

Last month The Journal reported the North East had seen the biggest dip in manufacturing output in the UK in the third quarter, ending two years of continuous growth.

But there was a bright spot for manufacturing firms as cost inflation rose at its slowest pace for more than three years, reflecting sharp drops in the price of oil and other commodities.