Double blow for economy with output and exports both falling

http://www.independent.co.uk/news/business/news/double-blow-for-economy-with-output-and-exports-both-falling-10494170.html

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The economic recovery is on shakier ground after a surprise slump for manufacturers sparked fears of a new recession in the sector.

Official figures showed a 0.8 per cent slide in manufacturing output in July – confounding predictions of a small rise – which the Office for National Statistics put down to earlier summer shutdowns in car production and weaker exports.

The latest headwinds for manufacturers – already battling a stronger pound and a global slowdown – follow a 0.3 per cent fall in output in the April-June quarter. Citigroup’s UK economist Michael Saunders said: “we may be heading for the second consecutive quarterly drop in manufacturing output – in other words, the ONS data suggest that manufacturing may now be in recession.”

The sector, which accounts for about 10 per cent of the UK’s overall output, has seen two years of growth, and last shrank for two consecutive quarters in late 2012 and early 2013. Output is now 0.5 per cent below a year earlier, the first instance of annual decline among manufacturers for two years. The gloomy figures came after the EEF manufacturers’ organisation cut its growth forecasts for the sector earlier this week.

There was more bad news for Chancellor George Osborne in poor trade figures, showing the UK’s goods trade deficit ballooning to £11.1bn. Goods exports dropped 9.2 per cent to £22.8bn – the biggest fall in a single month since July 2006.

The economy managed growth of 0.7 per cent between April and June but the latest forecasts from the National Institute of Economic and Social Research suggested the pace of expansion slowed to just 0.5 per cent in the quarter to August.

Sterling sank against the dollar following the figures, as traders bet against an early interest rate rise from the Bank of England.

HSBC UK economist Liz Martins said: “For any [Monetary Policy Committee] member thinking of changing their minds and voting for a rate rise… today’s double whammy of weak data releases may be the final nail in the coffin.”