Borderline case for industrial optimism

EVIDENCE of a twin-speed recovery in the manufacturing sector emerged yesterday with Scotland more upbeat than companies south of the Border.

A UK-wide survey showed output shrinking at its fastest in over two years, heightening growing fears of a double-dip recession. It also revealed that export orders have plummeted, another blow to hopes for an export‑led bounceback.

However, the data from Markit/CIPS for August contrasted sharply with a more optimistic quarterly review from Scottish Engineering revealing firms still pulling in orders.

The Markit survey index fell to 49 in August from 49.4 in July when any figure below 50 denotes contraction.

“The second half of 2011 has so far seen the UK manufacturing sector, once the pivotal cog in the economic recovery, switch into reverse gear,” Rob Dobson, Markit’s senior economist, said.

The new export orders index fell more than 7 points to 46.6. This was the first exports contraction in almost a year and the swiftest decline since May 2009 during the last recession.

City experts said the report made it virtually certain that the Bank of England’s monetary policy committee (MPC) will again freeze interest rates at historic lows of 0.5 per cent at its meeting next week.

The report has also prompted speculation that the MPC may inject more stimulus into the economy via another round of quantitative easing, the last programme being in March last year.

Teodor Todorov, economist at City economics consultancy Debr, said: “New orders have been falling since May, suggesting that the manufacturing recovery was more driven by a business need to replenish depleted inventories following the recession rather than a lasting revival of the sector.”

Economists said signs that price pressures are continuing to ease should also reassure the MPC that inflation is heading down. The PMI survey showed input prices rose last month at their slowest pace in almost two