Rate cut alert as manufacturing takes shock dive

THE sharpest slump for UK manufacturers in more than three years in the wake of the Brexit vote today intensified the pressure on the Bank of England to cut interest rates to a historic low.

The sector, accounting for around 10% of the economy, sank into recession territory in July as new orders and production levels slumped, according to the Chartered Institute of Procurement & Supply’s latest snapshot.shot. Its activit y index, where a score over 50 signals growth, h, plunged to 48.2 in July. Thatat was down from 52.4 in June,e, and even worse than surveyy c o mpil e r Marki t ’s i ni t i aa ll p o s t - r e f e r e n d u m a s s e s ss -ment of the e c o n o my ’ss health this month. It comes mes three days before the Bank’s monetary policy committee is widely expected to cut interest rates from 0.5% to 0.25%, the lowest in the 322-year history of the central bank.

Although official data are thin on the ground since the vote, Governor Mark Carney (pictured) and the MPC are also weighing up a host of more timely surveys, including falling retail sales and sliding confidence among finance chiefs and manufacturers. Its latest inflation report, published with the rate decision, could even forecast a recession.

Markit’s senior economist Rob Dobson said: “The weak numbers provide powerful arguments for swift policy action to avert the downturn becoming more embedded and help to hopefully play a part in restoring confidence and driving a swift recovery.”

Further action this week could also include an expansion of the existing Funding for Lending scheme to support business credit lending through a turbulent spell for the economy.

Capital Economics’ Scott Bowman added: “The overall negative tone of the survey reinforces the case for a monetary loosening at Thursday’s MPC meeting.”ing.” Worryingly for employment prprospects, Cips found manuffacturers rushed to cut staff in response to dwindling orders, with the pace of job losses among the fastest since 2013. The impact of post-Brexit jijitters on the domestic marketket also offset improvement in export orders following the pound’s crash since the vote.

Cips chief executive David Noble said: “Without new orders coming through, this downward trajectory is likely to get worse, at least in the short term.”

The UK’s woes contrasted with a brighter picture in Europe as the Continent’s manufacturers eked out modest growth last month.

But economists warned the euroz o n e ’s p e r f o r man c e wa s looking “increasingly lopsided” as strong German growth compared with stalling Italy and France heading into reverse.