LONDON, May 1 — UK manufacturing slowed more than predicted in April and consumers borrowed at the weakest pace in 5 1/2 years in March, adding to signs that the economy’s poor first-quarter performance could persist.
IHS Markit said its monthly Purchasing Managers Index was at 53.9, from a downwardly revised 54.9 in March. A 17-month low, it was worse than economists had forecast and hardened expectations the Bank of England will refrain from raising borrowing costs on May 10. The pound fell as much as 0.7 per cent.
A picture of an economy losing momentum was reinforced by figures from the BOE showing unsecured credit rose just £254 million (approx RM1.37 billion) in March, the least since November 2012. Mortgage approvals meanwhile dipped to 62,914, the lowest level this year.
An interest-rate hike this month was seen as a done deal until recently. Investors, who at one stage were assigning a more than 90 per cent chance to such a move, have slashed those odds to about 20 per cent after weaker-than-expected inflation, cautious comments from Governor Mark Carney and dismal growth figures for the first quarter. Only a small part of the slowdown was due to the heavy snowfalls that brought chaos to the country, statisticians estimate.
“While adverse weather was partly to blame in February and March, there are no excuses for April’s disappointing performance,” said Rob Dobson, director at IHS Markit. “The chances of a near-term hike in interest rates by the Bank of England look increasingly remote.”
The pound fell after the reports, sliding 0.5 per cent to US$1.3700 as of 10:57 a.m. London time. The currency has dropped for 10 of the past 11 days, after touching US$1.4377 on April 17 — the highest since the immediate aftermath of the Brexit vote in June 2016.
Other PMIs to be published this week, including for construction and the dominant services sector, will set the backdrop for the Monetary Policy Committee ahead of their decision next week.
“My immediate reaction to that is slightly worrying because if it was weather related we should be getting some stabilisation,” Jim O’Neill, a former chairman of Goldman Sachs Asset Management and the next chair of the Chatham House think tank, said in a Bloomberg TV interview today. “If I were an MPC voting member and had been thinking about a hike, I might be backing off a bit.”
The credit slowdown points to consumers becoming more cautious. While that message was contained in the BOE’s latest Credit Conditions Survey, economists were unprepared for the scale of the slump in March. The median forecast was for net borrowing of £1.4 billion, just below the average of recent months.
At ING, economist James Smith described the data as concerning. “With real incomes barely rising, such a sharp fall in consumer credit does not bode well for either the high street or the overall growth outlook,” he said.
On the manufacturing data, input-price inflation eased to a nine-month low, though it remained elevated, Markit said. Growth in new business orders eased to the weakest level in 10 months, with the slowdown particularly marked in consumer goods.
The downbeat trend will probably continue, Dobson said, with firms unlikely to boost output amid weak demand and rising stocks of unsold goods. Business optimism also dipped to a five-month low due to concerns about Brexit, trade barriers and the overall economic climate. — Bloomberg
