LONDON–Britain’s manufacturing sector contracted for the second straight month in June as new orders continued to fall, a survey showed on Monday, adding to expectations the Bank of England (BOE) will pump more cash into the struggling economy. The Markit/CIPS closely watched Purchasing Managers’ Index (PMI) rose to 48.6 last month from May’s three-year low of 45.9, beating expectations for a more modest climb to 46.5, but spending its second month below the 50 mark that divides growth from contraction. “There’s no denying that the second quarter as a whole is looking weaker than the first quarter,” said Rob Dobson, senior economist at data compiler Markit. “Manufacturing output may have contracted by at least 0.5 percent and therefore acting as a substantial drag on the economy for the fourth successive quarter.” Britain’s economy contracted 0.3 percent in the first three months of the year and having shrunk at the end of 2011 it met the technical definition of recession. With economists seeing tepid growth ahead at best, and only a mild bounce next quarter from London’s hosting of the Olympic Games and the subsequent tourism and ticket sales, the BOE is widely seen restarting its program of quantitative easing asset purchases.
The Bank is expected to top up the 325 billion pounds of cash it has already pumped into markets with another 50 billion when it meets on Thursday as falling inflation gives it more scope to support the battered economy.
In a further sign of the weak state of the economy, official data showed on Friday that the country’s dominant service sector stagnated in April.
A sister PMI survey for services firms due on Wednesday is expected to show the sector, which accounts for three quarters of Britain’s output, barely grew last month. The data will make grim reading the Conservative-led coalition government that is pressing ahead with its tough austerity measures to reduce a record deficit in the face of calls to instead introduce stimulus measures to boost growth. Order Fall With the new orders index holding sub-50 for the third month running at 47.0, albeit up from May’s three-year low of 42.0, the situation is unlikely to improve anytime soon.
The survey also showed that for the sixteenth month some of the moderate activity was driven by firms running down old orders and that they were cutting staffing levels to reduce costs. Export orders declined for the third month as the debt crisis rages on through the eurozone, Britain’s main trading partner. BOE Governor Mervyn King said last week Britain’s economic outlook had worsened markedly in the space of just six weeks due to the deepening eurozone crisis and signs that a global slowdown is taking root in the United States and emerging markets.