UK economy slows to 0.2 per cent in July as manufacturing wilts

Britain's economy slowed to 0.2 per cent growth in July fuelled by a contraction in manufacturing activity, which suffered its first decline in two years.
 
UK manufacturing activity based on the Purchase Managers' Index (PMI) for July fell to 49.1, down from a revised 51.4 in June. A figure below 50 indicates contraction.

The sector, which makes up 12.8 per cent of the country's GDP, also saw job losses for the first time since March last year, the survey reported.

The report hammered the pound, which fell against currencies such as the Swiss franc and the yen, which outperformed in thin trade. The pound also lost nearly half a cent against the dollar, dropping to $1.6409 from $1.6451 on the news.

The slowdown may force chancellor George Osborne to end cutbacks and opt for an expansionary fiscal policy.

PMI showed that manufacturing output in the UK grew slightly, while new orders and employment levels were down. Input prices grew at a slower pace, due to price reductions in plastics and steel.

New orders contracted for a third month running in July and at the fastest rate since May 2009, due mainly to a fall in domestic demand. Export orders had actually picked up although at a slower pace.

There were, however, two positive findings in the report. The weak pound is still supporting exports, while inflation in input costs slowed.