Although surveys have painted a gloomy picture of the British economy, British finance minister has downplayed their results saying these are gauging only sentiments and not manufacturing activity.
According to surveys, Britain appears to be headed for a recession. British manufacturing activity shrank at its fastest pace in more than 3 years, while the country’s business confidence was lost in the woods following the country’s historic referendum.
News reports such as these will only strengthen Bank of England’s move to cut interest rates later this week.
Falling factory output levels and faced with bleak fresh orders, the closely watched factory purchasing manager’s index fell to its lowest levels since February 2013.
Britain’s decision to leave the EU is having a very real impact on its economy.
Following the results of the manufacturing survey, Sterling slumped to its three week low.
Significantly, British accountants have disclosed that the slump in business confidence occurred after the EU vote, when the country woke up to the impact of their referendum. The confederation of British Industry has reported that they expect economic growth to come to a halt over the next three months.
This only fuels the case for Bank of England’s move to cut interest rates, its first since 2009. It also highlights the challenges facing the country as the sterling finds itself moving into a downward trajectory since the June 23 vote.
“The collapse in the total orders balance … signals that support from the weaker pound simply is not powerful enough to offset slumping domestic demand,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
He went on to add, “Meanwhile, the pick-up in the prices charged balance to its highest level in almost two years demonstrates that the (BoE) Monetary Policy Committee cannot relax about the inflation outlook when considering policy easing measures this week.”
Meanwhile the Markit/CIPS UK manufacturing purchasing managers’ index (PMI) has fallen to 48.2 in July from 52.4 in June, its lowest since February 2013.
As per Barclays, the survey from the purchasing managers goes to suggest that Britain will enter a recession while its economy is likely to contract by 0.4% every quarter till September. From October onwards, the contraction is likely to be by 0.3% till the fourth quarter.
Phillip Hammond, Britain’s finance minister, has however remained optimistic and has downplayed the PMI numbers saying they were only a measure of sentiment and not of “hard activity”.
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