[h=3]By ILONA BILLINGTON[/h]LONDON—The contraction in the U.K.'s manufacturing sector deepened sharply in July to the lowest level since May 2009, as weakening demand from Asia added to a growing list of economic headwinds, data from Markit and the Chartered Institute of Purchasing & Supply showed Wednesday.
The figures come on the day the U.K. government and Bank of England open the Funding for Lending Scheme—the latest attempt to inject growth into the recession hit economy—and hot on the heels of lender Nationwide's disappointing house price index. Attention then turns to the BOE's latest policy announcement on Thursday.
The PMI for the manufacturing sector slumped to 45.4 in July from June's 48.6, remaining well below the key 50 level that separates expansion from contraction, confirming that the sector is continuing to shrink.
The PMI figures surprised economists polled by Dow Jones Newswires last week, who had expected the PMI to fall to 48.0.
"There isn't much positive news to take from this survey with demand being hammered by persistent weakening in euro-zone markets and slower growth in other parts of the world," said Lee Hopley, chief economist at the EEF.
Although the data are much weaker than expected, ING Bank economist James Knightley says it is unlikely to "alter the outlook for the BOE's August policy meeting."
A Dow Jones Newswires survey of economists forecasts no change to rates or the asset purchase scheme when the announcement is made at 1100 GMT Thursday.
Indeed, instead of acting through the usual channels of the monthly policy meeting, the FLS is the latest effort from U.K. authorities to bolster the ailing economy which contracted by 0.7% in the second quarter of this year and is currently showing few signs of recovery amid the weakening global outlook.
By offering lenders cheaper funding in return for increasing how much they lend to consumers and businesses, the central bank and U.K. Treasury hope an increased cash flow will filter down through the economy and ultimately give it a much-needed boost.
"Rising borrowing costs have held back the growth ambition of many small and medium-sized firms," said Confederation of British Industry's director-general John Cridland. "This scheme should support banks to make finance more affordable to businesses and consumers, while also encouraging banks to lend more."
The details of the PMI survey, meanwhile, show that output and orders slumped in July. Export orders were weighed down by a drop in demand from Asian clients, as well as continued weak order levels from the euro zone.
"A perfect storm of wet weather and weak confidence in the U.K. has combined with global economic drift to engulf the manufacturing sector in July," said David Noble, chief executive officer at the CIPS.
"While the euro zone has continued to be the major factor, declines in business from Asia have dashed hopes of a quicker recovery," he said.
The PMI data added to the gloom of the Nationwide house price index which reported declines of 0.7% on the month and 2.6% on the year. The lender said the fifth monthly decline since the beginning of the year and the deepening annual drop reflects not only the impact of the wet weather, but also the weakness of the wider economy and continuing tight lending conditions.
"The weaker price trend observed in recent quarters is unsurprising, given the disappointing performance of the wider economy," Nationwide's chief economist Robert Gardner said.
Write to Ilona Billington at [email protected]
The figures come on the day the U.K. government and Bank of England open the Funding for Lending Scheme—the latest attempt to inject growth into the recession hit economy—and hot on the heels of lender Nationwide's disappointing house price index. Attention then turns to the BOE's latest policy announcement on Thursday.
The PMI for the manufacturing sector slumped to 45.4 in July from June's 48.6, remaining well below the key 50 level that separates expansion from contraction, confirming that the sector is continuing to shrink.
The PMI figures surprised economists polled by Dow Jones Newswires last week, who had expected the PMI to fall to 48.0.
"There isn't much positive news to take from this survey with demand being hammered by persistent weakening in euro-zone markets and slower growth in other parts of the world," said Lee Hopley, chief economist at the EEF.
Although the data are much weaker than expected, ING Bank economist James Knightley says it is unlikely to "alter the outlook for the BOE's August policy meeting."
A Dow Jones Newswires survey of economists forecasts no change to rates or the asset purchase scheme when the announcement is made at 1100 GMT Thursday.
Indeed, instead of acting through the usual channels of the monthly policy meeting, the FLS is the latest effort from U.K. authorities to bolster the ailing economy which contracted by 0.7% in the second quarter of this year and is currently showing few signs of recovery amid the weakening global outlook.
By offering lenders cheaper funding in return for increasing how much they lend to consumers and businesses, the central bank and U.K. Treasury hope an increased cash flow will filter down through the economy and ultimately give it a much-needed boost.
"Rising borrowing costs have held back the growth ambition of many small and medium-sized firms," said Confederation of British Industry's director-general John Cridland. "This scheme should support banks to make finance more affordable to businesses and consumers, while also encouraging banks to lend more."
The details of the PMI survey, meanwhile, show that output and orders slumped in July. Export orders were weighed down by a drop in demand from Asian clients, as well as continued weak order levels from the euro zone.
"A perfect storm of wet weather and weak confidence in the U.K. has combined with global economic drift to engulf the manufacturing sector in July," said David Noble, chief executive officer at the CIPS.
"While the euro zone has continued to be the major factor, declines in business from Asia have dashed hopes of a quicker recovery," he said.
The PMI data added to the gloom of the Nationwide house price index which reported declines of 0.7% on the month and 2.6% on the year. The lender said the fifth monthly decline since the beginning of the year and the deepening annual drop reflects not only the impact of the wet weather, but also the weakness of the wider economy and continuing tight lending conditions.
"The weaker price trend observed in recent quarters is unsurprising, given the disappointing performance of the wider economy," Nationwide's chief economist Robert Gardner said.
Write to Ilona Billington at [email protected]