File under faltering economic recovery.
Via Reuters, the UK manufacturing PMI survey for July:
-UK MARKIT/CIPS MANUFACTURING PMI 49.1 IN JULY VS REV 51.4 IN JUNE (REUTERS POLL 51.0), LOWEST SINCE JUNE 2009
- UK MARKIT/CIPS MANUFACTURING PMI NEW ORDERS INDEX 47.6 IN JULY, LOWEST SINCE MAY
-UK MARKIT/CIPS MANUFACTURING PMI OUTPUT INDEX LOWEST SINCE MAY 2009
-UK MARKIT/CIPS MANUFACTURING PMI EMPLOYMENT INDEX LOWEST SINCE MARCH 2010
-UK MARKIT/CIPS MANUFACTURING PMI INPUT PRICES INDEX LOWEST SINCE DEC 09
So, broad based declines across the board in July and few indications that things will improve, says economists.
RBS:
Overall, a disappointing report. The manufacturing PMI has seen a dramatic deterioration over the course of this year: from a series high of 61.6 in January to a contractionary 49.1 in July. Until a month or two ago such concerns could be played down in the sense that the index was merely returning to longer-run norms (the series average is 51.4). July’s data increase the risks that the sector has stalled, or even cranked into reverse.
Nomura:
For the fifth consecutive month, the manufacturing sector has disappointed expectations. In the past six months, the headline composite index has crashed by 12.5 points, a record only exceeded post-Lehman in 2008. Output has been slightly better behaved over the past few months, but July’s 2 point decline to 50.6 leaves it slightly below May’s trough. Worryingly, the temporary supply-chain disruptions that depressed output in May appear to have eased, indicating that July’s weakness might be more structural
Thanks goodness then, the UK has a strong support services sector and the City of London.
Wait a minute.
From Monday’s FT:
UK banks are set to eclipse their European rivals by making even deeper job cuts as part of sweeping cost-saving measures to reverse rapidly falling revenues.
What price QE2 then? After all, the MPC’s current growth projections are at least as weak as when the Bank of England announced asset purchases in August and November 2009.
Not high, according to Ross Walker at RBS, who says a ‘Lehman style event’ will be needed before the BoE fires up the printing presses.
But weak growth is not enough. Elevated and sticky inflation presents a significant barrier: CPI inflation is currently almost twice the average rate when QE purchases were announced. The MPC’s latest CPI projections are much less benign than they were in 2009 – and the inflation forecasting ‘baggage’ of the past few years will impose some constraints on future policy discretion. The launch of QE2 requires some combination of: further downward revisions to GDP forecasts, meaningful undershoots of existing MPC inflation projections, and perhaps even some form of systemic shock (most obviously euro area or US sovereign debt crises triggering a second credit crunch). UK QE2 may well require a ‘Lehman’ type event as this would, implicitly, necessitate a cross-border policy response – the BoE’s scope to go it alone seems much more constrained in 2011-12 than in 2009.
Related links:
When doves don’t cry – FT Alphaville
Get ready for QE2 UK. Sort of – FT Alphaville
The UK economy: it’s the supply, stupid – FT Alphaville