Carney warns of world risks

MARK Carney has warned that the global environment is ‘unforgiving’ amid fears a worldwide slowdown could knock the UK recovery off course.

The Bank of England governor’s comments came as storm clouds gathered over the international economy after factory output tumbled in the United States and China, and Brazil lurched towards its worst downturn since the 1930s.

The bleak news from around the world overshadowed signs that British manufacturers are emerging from recession and production is picking up in the eurozone.

Carney said: ‘Risks have continued to rotate from advanced to emerging market economies, and global growth remains subdued.’

In its latest financial stability report, the central bank said: ‘The risk of a sharper slowdown in China remains. This could have significant spillovers to the global economy.’

A closely watched index of activity among US factories, published by the Institute for Supply Management, fell from 50.1 in October to 48.6 last month, its lowest level for more than six years.

It was the first time the index has dropped below the 50 mark that separates growth from decline since November 2012 and was the weakest score since June 2009.

The slump – in part driven by a rising dollar, which has hurt exports – will worry officials at the Federal Reserve as they weigh up whether the US economy is strong enough to withstand higher interest rates.

It is thought the Fed could raise rates for the first time in nearly a decade this month – pushing up borrowing costs for millions of households and businesses.

At the same time, the European Central Bank is expected to provide fresh stimulus in the eurozone to kick-start the moribund single currency economy.

A separate report showed Chinese manufacturers have suffered their worst month for more than three years. China’s manufacturing index, where scores below 50 also show contraction, fell for a fourth month in a row from 49.8 in October to 49.6 in November.

The slump in factory output in the US and China fuelled fears over the strength of the global recovery. The mood was further darkened by a 1.7pc decline in gross domestic product in Brazil in the three months to the end of September.

It was the third quarter of decline in a row – something that has not happened since comparable records began in 1996 – and put Brazil on course for its worst recession since the 1930s. ‘What started as a recession driven by the adjustment needs of an economy that accumulated large macro imbalances is now mutating into an outright economic depression given the deep contraction of domestic demand,’ said Alberto Ramos, chief Latin America economist at Goldman Sachs.

Britain’s struggling manufacturers also saw expansion slow last month but remain on course to exit recession by the end of the year.

The index of activity in UK factories slipped from a 16-month high of 55.2 in October to 52.7 in November. But experts said the sector was set to return to growth in the current final quarter of the year following three quarters of decline since the start of 2015.

‘UK manufacturing is moving back into expansion mode during quar- ter four,’ said Rob Dobson, senior economist at Markit, which complied the survey.

Factories in the eurozone clocked up a score of 52.8, up from 52.3 in October. Figures from official statistics agency Eurostat showed unemployment in the single currency bloc fell from 10.8pc in September to 10.7pc in October – its lowest level since January 2012 but well above the 5.3pc jobless rate seen in Britain.

The index of factory output around the world, published by Markit and JP Morgan, slipped from 51.3 in October to 51.2 in November.