Manufacturing sector

U.K. Manufacturing Sector growth slows in September, prompting manufacturers to lay off workers, against backdrop of uncertain global outlook. Eurozone manufacturing also lost momentum and output from Chinese factories continued to fall…

Powered by article titled “UK manufacturing sector suffers job losses for first time in two years” was written by Julia Kollewe and Katie Allen, for on Thursday 1st October 2015 18.52 UTC

Tough export markets and weaker consumer spending continued to take their toll on UK factories last month, prompting the first job losses for the sector in more than two years, according to a survey that echoed signs of manufacturing weakness around the world.

The performance at UK factories was lacklustre in September, when growth slipped to a three-month low. Against the backdrop of warnings about the uncertain outlook for global growth, eurozone manufacturing also lost momentum and output from Chinese factories continued to fall.

For the UK, the first snapshot of manufacturing performance in September continued a downbeat trend. The key measure of factory activity slipped back to within a whisker of June’s two-month low, according to the Markit/CIPS manufacturing PMI report.

At 51.5 the main balance was still above the 50-mark that separates growth from contraction, but it marked a slowdown from 51.6 in August and economists said it would further convince policymakers at the Bank of England to hold off from raising interest rates from their current record low of 0.5%.

The survey reported manufacturing job losses for the first time since April 2013.

“Job cuts send a signal that manufacturers are becoming more cautious about the future, which may lead to a further scaling back of production at some firms in coming months,” said Rob Dobson, senior economist at Markit.

“The ongoing malaise of the manufacturing sector will add to broader growth worries and supports dovish calls for a first rise in interest rates to be held off until the industry returns to a firmer footing.”

The manufacturing sector has been growing for 30 months, according to the survey, but the pace has slowed since the start of the summer. While output growth improved slightly last month, growth in new orders tailed off to the weakest rate seen this year.

Manufacturing growth
Manufacturing growth in the UK. Illustration: Markit/CIPS

Manufacturing growth across the eurozone slowed to a five-month low, according to separate reports from Markit. Its factory PMI for the currency bloc slipped to 52.0 from 52.3 in August. Activity slowed in Germany and Spain, while the French factory sector is expanding again.

The slump at China’s factories also continued, but there were some signs of stabilisation. The Caixin China general manufacturing PMI found that production was still falling, forcing firms to lay off more people. The official manufacturing PMI published by the Beijing government also showed that manufacturing was still contracting, but at a slower rate.

Economists drew links between China’s downturn and the pressures on UK manufacturers already grappling with a relatively strong pound, which makes their goods more expensive to overseas buyers.

“Manufacturing continues to face headwinds from weaker demand from China and emerging markets – where the UK sends up to 15% of its exports – in addition to strength in sterling which is up 15% in effective terms compared to its February 2013 low,” said Kallum Pickering, senior UK economist at Berenberg bank.

He saw little prospect of manufacturing having boosted the wider economy in recent months but was optimistic EU and US demand would help the sector.

“For now, UK manufacturers might see export demand dwindling as the developing world struggles with slowing Chinese demand and weak commodity prices, but in the medium term rising demand from the UK’s biggest and closest trading partners should help underpin a recovery in UK manufacturing,” Pickering added.

Separate UK figures on productivity also pointed to recent weakness in the manufacturing sector. There was a 0.5% fall in factory output per hour in the second quarter, bucking the improving trend for the wider economy, according to the Office for National Statistics (ONS).

Across all sectors, productivity grew by 0.9% from the first to the second quarter on an output per hour measure. That took productivity to the highest level on record, but it was still 15% below where it would have been had pre-downturn trends continued, the ONS said.

Zach Witton, a deputy chief economist at EEF, the manufacturers’ organisation, said: “Today’s data suggests the challenging export environment and weak demand for investment goods in the oil and gas sector has started to take a toll on business confidence.” © Guardian News & Media Limited 2010

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Upbeat mood in Britain contrasts with pessimistic eurozone surveys. Fears of recession in France grow. Eurozone composite PMI remains in expansion territory above the 50 mark at 51.5, but declines from October’s level of 51.9…


Powered by article titled “UK manufacturing expands at fastest rate since 1995″ was written by Heather Stewart, for on Thursday 21st November 2013 13.32 UTC

Britain’s manufacturing sector is expanding at its fastest pace for 18 years as new orders pour in, according to a new survey, rekindling hopes for a rebalancing of the economy.

The Confederation of British Industry’s monthly industrial trends survey shows manufacturing orders and output both at their highest level since 1995.

The CBI said that 36% of firms reported their order books were above normal, with 25% saying they were below normal. The resulting balance of +11% was the strongest since March 1995. Similarly, the positive balance for firms’ level of output, at +29%, was the strongest since January 1995.

Stephen Gifford, the CBI’s director of economics, said: “This new evidence shows encouraging signs of a broadening and deepening recovery in the manufacturing sector. Manufacturers finally seem to be feeling the benefit of growing confidence and spending within the UK and globally.”

The coalition will be encouraged to see signs of a revival in British industry, after fears that the economic recovery has so far been too reliant on consumer spending and an upturn in the housing market.

The chancellor of the exchequer, George Osborne, has said he would like to see a “march of the makers”, helping to double exports by the end of the decade, so that Britain can “pay its way in the world”.

Business surveys have been pointing to a revival in manufacturing for some time, but it has only recently begun to be reflected in official figures, which showed a 0.9% increase in output from the sector in the third quarter of 2013, driven primarily by the success of carmakers. However, output from manufacturing remains more than 8% below its peak before the financial crisis.

News of the upbeat mood among manufacturers in the UK contrasts with more pessimistic surveys from the eurozone where the so-called “flash PMIs” suggest that the economic recovery is petering out in several countries, including France.

While the composite PMI for the eurozone remains above the 50 mark at 51.5, this is a decline from October’s level of 51.9, suggesting that while the eurozone economy as a whole has not slipped back into recession, the pace of growth appears to have slowed.

Chris Williamson, of data provider Markit, which compiles the survey, said: “The fall in the PMI for a second successive month suggests that the European Central Bank was correct to cut interest rates to a record low at its last meeting, and the further loss of growth momentum will raise calls for policy makers to do more to prevent the eurozone from slipping back into another recession.” © Guardian News & Media Limited 2010

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With its linked trade and innovation deficits, the UK seems as unprepared for a currency war as it was for real war in 1939. Countries are trying to export deflation somewhere else, using currency manipulation to do so…


Powered by article titled “UK looks ill-prepared if a global currency war breaks out” was written by Larry Elliott economics editor, for The Guardian on Sunday 17th November 2013 19.41 UTC

Rumours of war are in the air. Currency war, that is. The US treasury has forged an alliance with Brussels to attack Germany’s beggar-thy-neighbour approach to the rest of the eurozone. Last week the Czech government said it would defend its economy by driving down the value of  the koruna, following the aggressively interventionist example of  Japan and Switzerland.

It’s not hard to see why the atmosphere is becoming less cordial. This is a low growth world marked by over-capacity. Wages are under downward pressure and this is leading to ever-stronger deflationary pressure. A lack of international policy co-operation means that countries are trying to export deflation somewhere else, using currency manipulation to do so.

If a full-scale currency war does break out Britain looks as ill-prepared as it was for a military fight in 1939. We like to think of ourselves as a nation of buccaneering traders but only 16% of small and medium enterprises, with a turnover of over £20m, are actually exporting. We like to think of ourselves as the nation of innovators, yet as Richard Jones, of Sheffield University, notes, the UK is a less research and development intensive country than it was 30 years ago, and it lags well behind most of its rivals. The UK has linked trade and innovation deficits.

Jones, in a paper for the Sheffield Political Economy Research Institute, examines in detail how during the past 30 years the UK’s corporate laboratories have vanished and how big R&D spenders such as ICI and GEC switched from being companies that thought about long-term investment to ones where the prevailing doctrine was to return the money spent on R&D to shareholders.

Those in charge of UK manufacturing companies became more interested in the next bid, the next deal and the next set of quarterly results than in developing new product ranges.

The consequences of decades of neglect of the country’s productive base and an over-reliance on North Sea oil and financial services are now glaringly apparent. In the past, recessions have ended with the current account broadly in balance. This recovery starts with a current account deficit of more than 3%  of national output.

This is despite a fall of 20% in the value of the pound between 2007 and 2013, which in theory should have boosted exports. In reality, exports grew by 0.4% a year between early 2009 and the start of 2013, compared with 1% a year in the previous decade.

Ministers have a pat answer when quizzed about the poor performance of exports. It is, they say, the result of geography. More than 40% of UK exports go to the eurozone, where growth is weak and demand for imports has collapsed. So the impact of sterling’s depreciation has been blunted.

This view is not shared by the Bank of England. While admitting that the global recovery is patchy, the bank noted in its February inflation report that “the relative weakness of UK exports does not reflect particular weakness in its major trading partners”. It concluded that some other explanation was needed “to explain the disappointing performance of UK exports”, and found it in a sharp drop in exports of financial services and the tendency of UK firms to use a cheaper pound to boost profits rather than increase market share. The decline in exports from the City since the crash highlights the risks for Britain of the “eggs in one basket” approach.

As Ken Coutts and Bob Rowthorn note in a paper on the prospects for the balance of payments, the UK has gone from being a country that had a 10% of GDP surplus in trade in manufactures in 1950 to running a 4% of GDP deficit by 2011. North Sea oil and gas were in decline, so energy added to the deficit by 1.3% of GDP. Food and government transfers to overseas bodies such as the EU, World Bank and UN were the other big debits.

On the other side of the ledger there were three sources of surpluses: financial services and insurance (3.1% of GDP); other knowledge-intensive services, which include law, consultancy and IT (2.5% of GDP); and investment income (1.1% of GDP). Once all the debits and credits were totted up Britain had a current account deficit of 1.9% of national income. This rose to 4% of GDP in 2012.

The recession has taken a heavy toll on two of the surplus sectors. Investment income has turned negative, and global demand for financial services has fallen. This has affected the UK more than the other big global providers of financial services, the US and EU.

According to the Bank of England, “This could reflect lower demand for UK financial services in general, or a particularly sharp fall in demand for those financial products in which the UK specialised prior to the crisis.” This is a polite way of saying that no one any longer wants what Lord Turner once dubbed the City’s “socially useless” products.

Coutts and Rowthorn model what happens to the current account using assumptions for growth in the UK domestic economy and world trade, the level of UK competitiveness, oil prices, North Sea oil and gas production, and returns on financial assets.

The baseline projection is that the current account is 3% of GDP in 2022. Using a slightly more pessimistic assumption, the deficit swells to 5% of GDP. As the authors note: “A deficit of this magnitude would be a cause for serious alarm.”

It certainly would be. The outgoing trade and investment minister, Lord Green, told a conference in the City to mark export week that there was no guarantee the rest of the world would be prepared to finance deficits of this size for ever. The government has a target for raising exports to £1tn a year by 2020 – which will require them to grow by 9% a year. (The average since 2012 has been 5%.)

We have heard the “export or die” message many times in the past, to little effect it has to be said. It is not impossible to improve Britain’s export performance, though doing so with the current economic model is a pipe dream. It will require nurturing manufacturing, knowledge-based services and those bits of the financial services sector for which there is long-term demand.

Britain, Jones says, “needs to build a new developmental state, a state that once again takes responsibility for large-scale technological innovation as the basis for sustainable growth and prosperity”. Amen to that. If a currency war is brewing, we need the can-do spirit of 1940, not the head-in-the-sands approach of 1938. © Guardian News & Media Limited 2010

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This week UK GDP figures are expected to show a healthy increase, but is this the sort of recovery that benefits everyone? Analysts predict a growth rate of around 0.6%, perhaps even 0.8%, representing a strengthening of the recovery…


Powered by article titled “Britain sees signs of recovery, but who has been left behind?” was written by Heather Stewart and Katie Allen, for The Observer on Saturday 20th July 2013 23.00 UTC

Row upon row of Range Rovers and Minis gleam in the afternoon sun in the yards around Southampton docks, waiting to be driven on to huge cargo ships that will carry them to car-hungry emerging economies.

From his office, port director Doug Morrison can see the towering cruise ships being loaded before they cast off for Mediterranean and Caribbean holidays. Alongside stands a ship awaiting a cargo of new cars, which arrive on the dockside on dedicated trains from manufacturers in the Midlands. Further along are container ships bringing TVs and clothes from the far east and a vast array of goods to stock Britain's shops.

"Two years ago there were 500,000 imports and exports of new cars here. This year it is 750,000 and I am pleased to say 65% of that is exports. They are from Jaguar Land Rover, Honda and there are Mini Coopers. Much of that growth is coming from Jaguar Land Rover sales to the far east," says Morrison.

This picture of a thriving British export sector is exactly the one the coalition will be hoping to project on Thursday, if, as experts expect, the latest GDP figures show the economy expanded at a healthy clip in the second quarter of 2013.

Analysts predict a growth rate of around 0.6%, perhaps even 0.8%, which would represent a marked strengthening of the recovery – good news for a coalition keen to seize on signs that the economy has moved "out of intensive care", as chancellor George Osborne puts it.

"We have a great economic barometer here. We can really see what is happening," says Morrison, who has run the docks for Associated British Ports since 2005. He talks about the "three C's" – cars, cruises and containers – and all point to an upturn, albeit with choppy seas ahead. "The cruise business continues to be very strong," he says.

Famous in the past as the port from which Titanic set sail on its ill-fated maiden voyage, Southampton now sees 1.6 million passengers embark and disembark from cruise ships every year. Less than a decade ago only a third as many were passing through the port.

But Morrison adds that the number of containers being landed has not risen – the lack of growth in consumer imports evidence of tough times on Britain's high streets. "When you look at what the likes of Tesco and Argos are saying, it's not surprising that you are not seeing any real growth in containers."

It is not only at the dockside that things are looking up, four years on from the depths of the recession. Jan Ward, chief executive and founder of specialist metals distributor Corrotherm International, based on an industrial estate on the edge of the city, says she is "overwhelmed with work".

"These have been the best five years we have had," says Ward, who started the company in 1992. On the back of strong demand for the nickel alloy parts the company supplies to the oil and gas industry, turnover grew 46% over the last year to £21m and Ward expects it to double this year. Corrotherm has recently opened offices in Abu Dhabi, Saudi Arabia, Korea and Perth in Australia and is about to open one in China.

Ward, an active member of the local chamber of commerce, believes the government's push for what the chancellor has called a "march of the makers" is finally starting to yield results. "All the signs that I see are very, very good. Finally, these messages are starting to get through to manufacturers and people who are looking to start businesses up. For the manufacturing sector things are looking very bright."

Despite her optimism, however, some economists are concerned that while a stronger GDP reading would undoubtedly be good news, there is so far little sign of the deep-seated shifts in the economy the government had hoped to bring about. Russell Jones of Llewellyn Consulting says: "It looks like what is driving this is the consumer to a large degree, and you could argue that that's the wrong sort of growth."

The housing market is starting to recover and retail spending is on the rise, but business investment in the first quarter of 2013 was more than 16% lower than a year earlier. Meanwhile the latest trade figures suggested that although exports are rising, so are imports, so that hopes of Britain becoming a new manufacturing powerhouse have so far proved over-optimistic.

Simon Wells, UK economist at HSBC, says: "Back in 2010, we were hoping the economy would rebalance in three ways: away from services and towards manufacturing; away from consumption and towards investment; and away from domestic demand and towards exports. Now it seems that for policymakers, any growth will do."

The Bank of England and the Treasury had expected the sharp depreciation in sterling since 2008 to spark an export revival, as British goods became cheaper on world markets. But the transformation has been hampered, both because our major markets have been in crisis and our industrial sector is so hollowed out that an increase in exports brings in its wake a jump in imports too, as manufacturers buy raw materials and parts.

At the same time, the decline in the pound has been one cause of the above-target inflation that has further hampered recovery by eating into workers' pay. Jones points out that with real incomes continuing to fall, in what the TUC has described as the longest squeeze on wages since the late 19th century, any rise in consumption is being driven by "people dipping into their savings".

There is certainly evidence in Southampton that the long-stalled property market is beginning to revive. Lisa Martin-Pope, who works in one of the many estate agents on the city's busy London Road, says: "The biggest indicator at the moment is we are seeing more first-time buyers and seeing banks and building societies lending to them more readily." Her agency, Martin & Co, is seeing homes selling more quickly, with the average buyer paying 93% of the asking price.

Labour will argue on Thursday that the benefits of the nascent upturn have been pocketed by a limited number of people, including those in financial services. Chris Leslie, shadow financial secretary to the Treasury, says: "Wages after inflation are now down by an average of £1,300 since David Cameron got into Downing Street, yet bank bonuses soared to £4bn in April as high earners took full advantage of the top-rate tax cut."

From his window on the docks, Doug Morrison agrees that not everyone is reaping the rewards of recovery. "The haves continue to spend and the have-nots cannot spend," he says. "People are reluctant to give up their holidays, the haves are still buying cars, but the poor people out of work or not getting any pay rises are not buying their three-piece suites or buying new clothes as often."

The haves are certainly in evidence at Southampton's Ocean Village marina, where shining white yachts are moored alongside motorboats. Luxury apartments overlook the water and in harbourside bars people sit around tables with glasses of chilled rosé and beer.

The only thing to spoil the idyllic summer scene is the sound of the jackhammers on the nearby construction site where a £74m, 24-storey apartment block will become Southampton's tallest building. James King, of local boat and home broker Waterside Properties, says there is a "cautious recovery".

But a short drive away from the marina, at Ford's soon-to-be-defunct Transit van plant, there's a powerful sense that not everyone is sharing in what Osborne calls the "healing" of recession-scarred Britain.

Engineer Chris finds it hard to conceal his dismay at losing the job he has had for 28 years. "It is devastating really. It's the end of an era. Anyone who has been here a long time is faced with a very empty shell of a plant. It is like a ghost town."

Chris, 52, who preferred not to give his full name, is moving to a new job with Ford in Wales, but not all his colleagues have been so fortunate, he says. "There's a lot of youngsters that have young families. We are closely knit."

When the factory is mothballed on Friday it will mark the end of more than a century of Ford vehicle manufacturing in the UK and more than 40 years of making Transit vans in Southampton. Faced with a prolonged slump in demand across western Europe that has seen new vehicle sales drop to a 20-year low, Ford is moving much of its production to a cheaper base in Turkey.

"The atmosphere in there is one of shock and disbelief. People are walking around as if they don't know what's happened. People in there I've known for years, grown men, they have been in tears," says Chris.

It remains to be seen if the long-hoped-for recovery that seems to be taking root will blossom as the year goes on, perhaps bringing with it the greater confidence for firms, and new jobs and pay rises for their staff, that would help to spread its benefits. Until that happens, most analysts will continue to be sceptical. "I'm still quite cautious about growth," says Wells of HSBC. "There must be a limit to how much we can grow when real, post-inflation wages are falling." © Guardian News & Media Limited 2010

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Strong export sales help UK manufacturing sector stabilize after slump earlier in year, Cips/Markit survey shows. The reading follows a 0.3% rise in GDP in the first quarter, which was largely attributed to the strength of the services industry…


Powered by article titled “UK manufacturing shows signs of recovery – but firms remain cautious” was written by Phillip Inman, economics correspondent, for The Guardian on Wednesday 1st May 2013 10.23 UTC

A rebound in manufacturing appears to be under way after a disastrous start to the year, according to a survey of the sector in April.

Strong sales of consumer goods to North America, the Middle East, Latin America and Australia helped the sector stabilise after a slump in January and February.

Ministers will cheer a recovery in the sector, especially after the 0.3% rise in GDP in the first three months of the year, which was largely attributed to the strength of the services industry.

An improved outlook for manufacturing, which was a drag on output in the first quarter, could allow GDP to maintain a more consistent and positive path over the coming months.

The consumer goods industry led the way, with companies producing machine tools not far behind, as the sector showed a modest rise in production amid a widespread clearance of stock left over from the slump earlier in the year.

Much of the slump is attributed to bad weather at the beginning of the year, though renewed uncertainty in the eurozone and a persistent lack of bank lending for investment also played a part.

Althouth eurozone fears have eased, the situation remains febrile and persistenly tight bank lendingis making some analysts cautious about a possible upturn.

The Cips/Markit survey showed the sector continued to shrink last month but by only a small margin. At 49.8, the manufacturing purchasing manager's index (PMI) continued to be below the 50 figure that divides growth from contraction, though it fed expectations of a return to growth in May.

Lee Hopley, chief economist at EEF, the manufacturers' trade body, said the survey was a mildly encouraging start to the second quarter.

"While still not in positive territory overall, the data indicates a vital revival in export orders with demand from markets in the Americas and Middle East compensating for the continued weakness in Europe. This is a especially positive as the UK sorely needs an improvement in trade if we are to make faster progress on rebalancing growth."

Markit said the eurozone continued to drag on export sales, but a shift to markets further afield was making up some of the difference.

In contrast to the improving output figures, the sector shed jobs for the third straight month and most firms said they remained cautious about a possible sustained recovery.

Rob Dobson, an economist at Markit, said: "Following the poor start to the year, when manufacturing acted as a drag on the economy in the opening quarter, it is welcome to see the sector showing signs of stabilising in April. With forward-looking indicators such as new orders and the demand-to-inventory ratio also ticking higher, the sector should at least be less of a drag on broader GDP growth in the second quarter.

"Manufacturers report that the domestic market is just about holding its head above water, but was still a key cause of disappointingly weak demand, while a solid improvement in new export orders was the real surprise."

The figures followed a disappointing survey of Chinese manufacturing that showed a dip earlier this year turning into a more prolonged slowdown.

The official manufacturing PMI, composed for the statistics bureau by the China Federation of Logistics and Purchasing, fell from 50.9 in March to 50.6 last month.

A Capital Economics analyst, Mark Williams, said: "At face value that is not too big a drop. But April is normally one of the strongest months of the year, particularly for output. The fact that the output component fell at all – from March's 52.7 to 52.6 – is therefore a concern," he said. "If the usual pattern holds, output will weaken in coming months." © Guardian News & Media Limited 2010

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Sluggish industrial performance and shrinking manufacturing output renew fears of triple-dip recession in the UK. Demand for goods has been hammered by economic uncertainty and punishing austerity, while exports have been hit by the eurozone crisis…

Powered by article titled “UK industrial production growth weaker than forecast” was written by Josephine Moulds, for on Friday 11th January 2013 10.51 UTC

UK industry posted sluggish growth in November, renewing fears that the economy shrank in the final quarter and pushing Britain towards an unprecedented triple-dip recession.

Manufacturing output dropped 0.3% in November, after a fall of 1.3% in October, according to the Office for National Statistics.

The wider reading of industrial output – also including output from the energy and mining sectors – grew by 0.3% following a sharp decline in October, which was revised down further on Friday to -0.9%. November’s figures were boosted by an 11.3% jump in oil and gas output – the biggest increase since 1968 – after maintenance of the Buzzard North Sea oil field was completed.

But both manufacturing and industrial production missed expectations, with analysts hoping for rises of 0.5% and 0.8% respectively.

Demand for goods in the UK has been hammered by economic uncertainty, below-inflation wage growth and punishing austerity, while exports have been hit by the ongoing eurozone crisis.

Britain emerged from recession in the third quarter of last year and there were tentative hopes the economy could continue to grow in the last three months of 2012. But a series of gloomy releases – including weak trade data and downbeat purchasing managers’ surveys – have fuelled fears of a contraction in the final quarter. If output continues to fall in the first quarter of this year, the UK will fall into its third recession in four years.

Separate figures out from the ONS on Friday only added to concerns, as construction output dropped 3.4% in November.

Howard Archer of IHS Global Insight said: “Hopes the economy avoided a renewed GDP dip in the fourth quarter of 2012 took another significant blow as industrial production could only manage a small rebound in November following sharp drops over the previous two months, while construction output suffered a marked relapse following October’s surge.” © Guardian News & Media Limited 2010

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U.K. manufacturing is down, construction is struggling, exporters are having a torrid time – and then there’s the eurozone recession. Here is a view of the current conditions in the U.K. manufacturing, housing, construction and banking sectors…

Powered by article titled “UK economy: the problem sectors” was written by Phillip Inman, economics correspondent, for The Guardian on Friday 7th December 2012 20.32 UTC


Industrial output is now at its lowest level since May 1992 and manufacturing is 20% down on its peak. Latest figures showed a month-on-month fall of 0.8%, far worse than economists had expected and the 16th consecutive month when manufacturing output was lower than the same month a year earlier.

The Office for National Statistics found most areas of manufacturing were on the slide, with chemical production and wood and paper manufacture leading the downturn.

A fall in the value of the pound and the opening up of new destinations for UK exports – such as Indonesia and Columbia – have failed to lift the sector, which is far more dependent on trade with the euro area than ministers would like. The British Chambers of Commerce said the sector remained well managed and prepared for an upswing, but needed more government help to boost exports to fast developing countries.


There may be plenty of cranes on the London skyline, but the construction sector outside the capital is dead. Commercial building, the lifeblood of most large firms, has failed to recover from the financial crisis. The hole in the heart of Bradford, where a Westfield shopping centre is already four years late, is an example of building projects that have remained strictly on the drawing board.

Civil engineering has suffered from a lack of infrastructure improvements after a near-£30bn cut in public investment spending. The CBI has urged the government to use the downturn to upgrade the road and rail network. The Treasury encouraging upgrades to the broadband network has failed to counteract falls in investment elsewhere.


The Bank of England has become increasingly frustrated at the unwillingness of banks to increase their lending to businesses and households. In the summer it set up an £80bn Funding for Lending scheme that allows banks to offer cheaper loans to customers. Banks have reported using the money to lower mortgage rates, but anecdotal evidence suggest older, more creditworthy customers have gained while first-time buyers remain on the sidelines. More importantly, many economists argue the loans on offer are small in comparison to the size of the problem.

The UK’s major banks remain in a dire financial situation and need to build up their capital reserves to protect themselves against another financial crash. The central bank governor, Sir Mervyn King, insisted earlier this month that UK banks were well-capitalised but said it would be “sensible” to improve their resilience further. He warned “an erosion of confidence” was damaging economic activity, creating “a spiral characteristic of a systemic crisis”.


British exporters are having a torrid time battling the headwinds of the slowing Chinese economy, the eurozone crisis and uncertainty in the US over the fiscal cliff (the tax rises and spending cuts timed for January which could halt US economic progress in its tracks).

According to the latest figures from the ONS, in the three months to October the country racked up its biggest trade deficit since records began. The trade gap widened to a record £28bn, from £25bn in the quarter ended July, the ONS said, as sales of goods into the rest of the European Union declined sharply.

George Osborne promised more help for exporters with loan and credit guarantees through the government’s UKTI export arm. But the sums remain small compared to the size of export orders and firms seem reluctant to take risks in the current economic environment.


Housebuilders have largely shed the debts acquired in the crash and become profitable again. But building remains at historic lows. The last time the UK built so few homes was in 1931.

MPs and business groups have called for a 1930s-style house building boom, but with no success so far. Ministers are planning to rip up planning rules to allow developers a clear route on greenfield sites, but even if this plan goes ahead, it will be some time before there are any spades in the ground.

Developers, which already have several years of plots on their books with planning permission, have refused to increase the number of new homes while customers are constrained by high mortgage borrowing costs. They blame the banks for withholding credit or charging too much for credit as the main reason for their inactivity.

Prices are slipping, putting another brake on investment in the sector. Halifax said prices are likely to stay flat next year after a 1.3% fall in 2012. Most families are unwilling to buy homes in a market where prices are falling, though buy-to-let investors have snapped up thousands of homes since the downturn, increasing the size of the rental market.

The eurozone

The machine at the heart of the eurozone is spluttering: the Bundesbank has sliced more than 1 percentage point off its forecast for economic expansion in Germany next year – highlighting severe aftereffects of the sovereign debt crisis.

The German central bank revealed the crushing blow to confidence and growth that has struck the euro area when it cut its projection for growth in 2013 from the 1.6% it had expected six months ago to a grim 0.4%. It also said the German economy, Europe’s largest, will grow only 0.7% this year, down from its previous forecast of 1%. The downgraded forecast shows Germany is no longer immune from the downturn in the rest of the currency bloc.

Separately, the German finance ministry said industrial output fell 2.6% in October, while manufacturing crashed by 2.4%, providing “further evidence that the economy’s backbone is quickly losing steam,” said the ING analyst Carsten Brzeski.

Without an expansive and confident Germany, it is almost certain the eurozone’s double-dip recession will continue into 2013, dragged down by severe contractions in the southern states.

There is also a feedback loop into UK trade should Germany suffer a prolonged fall in demand. Germany and the rest of the EU still comprise over 50% of UK exports, despite the government’s emphasis on redirecting trade elsewhere to rapidly developing economies in Asia, Africa and South America. © Guardian News & Media Limited 2010

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Spain applies for bank bailout funds. Eurozone finance ministers are expected to approve the disbursement later today. Details of vital bond swap for Greece.Greek bonds rally, but there’s concern in Athens. U.S. manufacturing data offers reasons for optimism…

Powered by article titled “Eurozone crisis live: Greece launches debt buyback scheme” was written by Graeme Wearden (until 2.30) and Nick Fletcher (now), for on Monday 3rd December 2012 14.41 UTC


Holland and Monti emphasize

French president Francois Hollande and Italian PM Mario Monti have repeated the “euro is irreversible” line at a joint press conference in Lyons.

Monti has also said the spread between Italian and German bonds was still not acceptable although it was on a pleasing downward trend. Then he reportedly added:

Meanwhile in the European parliament, German finance minister Wolfgang Schaeuble said solutions to the eurozone crisis can only be found step by step.


Here’s some more expert comment on today’s Greek bond swap (via the Reuters terminal):

Ricardo Barbieri, strategist at Mizuho

[The pricing] indicates they really want the swap to succeed.

Some investors might be tempted to participate in the swap because of the ability to simplify their position, should they wish to maintain exposure to Greece, otherwise an opportunity to exit totally, completely their positions at a level that is better than Friday’s close.

Stuart Thomson, manager of the Ignis Strategic Bond fund.

This is just another milepost on Greece’s road to Hell, which is of course, paved with good intentions.

The success of this buyback depends on the hedge funds and very much on their calculation whether a holdout could eventually get them more, or whether they will face a haircut in the next round.

I’ve got to scoot now, so Nick Fletcher is your host. Cheers all. GW


In the comments section below, 200gnomes points out that I’ve not mentioned claims that ex-Greek PM George Papandreou’s mother appears on the list of Greek tax evaders.

Not a conspiracy of silence – more that I”m not really sure what to make of the story.

Anyway, the raw facts are that two Greek newspapers, “To Vima” and “Proto Thema”, reported yesterday that Margaret Papandreou (89) is on the Lagarde List, and has €550m squirreled away in a Swiss bank account.

The claims (which would be absolute dynamite if true) have been very strongly denied by the Papandreou clan, with Mrs P claiming the family were being victimised for having “never served this country’s interest groups” (a claim that left TheGribbler despairing in the comments below).

The FT has more details of the denial (£).

We may have more details later.


US manufacturing sector keeps growing

Another positive piece of industrial data – America’s manufacturing PMI (as measured by Markit) rose in November to 52.8, up from 51 in October. That means growth accelerated during the month.

A sub-index that tracks new orders also rose, suggesting that the US economy is ending 2012 in better shape than much of Europe.

Confusingly, we’ll have another manufacturing PMI reading later this afternoon (the ISM one).


Haldane: Our grandchildren will pay for this crisis

The cost of the financial crisis will linger for decades, and the bill could still be being paid off in two generation’s time.

So warned Andy Haldane, the Bank of England’s executive director of financial stability, in an interview on BBC Radio 4′s World At One programme.

Haldane explained that in terms of the loss of incomes and outputs, this is as bad as a world war (elaborating on a point he made in late October when he applauded the Occupy movement).

Nick Sutton, the show’s editor, has the key quotes:

The whole programme’s online here, and you can here Haldane’s section here on Audioboo.


Spanish bank funding request – more details

Reuters has the full details of the Spanish bank bailout request:

Spain on Monday requested formally the disbursement of €39.5bn ($51.4bn) of European funds to recapitalise its crippled banking sector, the Economy Ministry said in a statement.

The money – €37bn for the four nationalised banks Bankia, Catalunya Banc, NCG Banco and Banco de Valencia and €2.5bn for the so-called “bad bank” – should be paid to the state’s banking fund FROB around Dec. 12, it added.

Eurozone finance ministers are expected to approve the disbursement later on Monday when they meet in Brussels for their monthly meeting.

The €37bn figure was approved by the EC last week (and covered in Wednesday’s blog).


Spain makes bank bailout request (not sovereign bailout reqest)

Just in: Spain has officially requested a bailout for its banking sector.

A statement issued in the last couple of minutes shows that the aid would be dispersed to Madrid on or around 12 December.

To be clear, this isn’t the long-anticipated request for a full-blown bailout – it’s the application to recapitalise the battered banking sector (agreed in principle this summer).

The news caused a little flurry in the financial markets, sending German bond prices falling and pushing the euro to a new six-week high against the dollar ($1.3075).

One fund manager reckons computer-based trading systems (the algorithmic systems that react almost instantly to the latest news) may have got confused …


Protests in Athens

Two different sets of anti-austerity protests have been taking place in Athens today.

One involves municipal workers, who are continuing to demonstrate against plans to lay off staff across the state sector (as part of the austerity plan demanded by the Troika):

The second protest is taking place to mark the International Day of People with Disability, with a group demonstrating against cuts to Greek welfare spending.

Disability groups say that Greece’s austerity programmes have deprived many people of their benefits.

Here’s some more photos from Athens:


Italian bonds rally

Italian government debt have been strengthening this morning, pushing down their yield (the interest rate on the bonds).

And in the last couple of minutes the spread between Italian and German 10-year bonds has dropped below 300 basis points mark for the first time since March.

Italy’s 10-year bond yield: 4.39%, down 11 basis points

Germany’s 10-year bond yield: 1.418%, up 3 basis points.

Another fillip for those who reckon the eurozone crisis is petering out (or at least entering a calmer phase)


Comment is free (ly available again)

Looks like the comments section has been fixed – thanks for your patience. Apologies again for the disruption.


Greek central bank hails new start

Back to the Greek bond swap plan – and in Athens the central bank of Greece has just stated that the deal opens the way for economic recovery.

In a statement, it said

A new start is now possible. [The deal] creates plausible expectations of a recovery of the Greek economy, perhaps even earlier than projected at present.

But before that happens, the Bank of Greece sees more pain ahead. It predicted that GDP would shrink by ‘slightly more than 6%’ in 2012, and another 4.5% in 2013, before ‘positive growth’ finally returns in 2014.


We’ve plotted this morning’s manufacturing data (see 9.44am onwards) on one graph, showing how the main eurozone countries and the UK have performed:


This afternoon’s Eurogroup meeting of euro finance ministers is the fourth in as many weeks. Luke Baker of Reuters reckons they’re approaching their half century of crunch gatherings since the crisis began.

Canaryatthewharf made a similar point in the comments section below:

Hopefully we can start focusing soon on wider issues than just the euro-zone if the debt buy back works and Greece gets sufficient cash to function until end-2013.

But are we really approaching a lull? Economists and assorted experts are divided, between those who reckon the eurozone isn’t getting the credit for the decisive progress made in recent months, and those who reckon policymakers have only papered over the cracks.

This little exchange on twitter between economist Megan Greene (bearish) and journalist Joe Weisenthal (bullish) shows the opposing views.


Scepticism in Greece over bond swap deal

Over in Greece our correspondent Helena Smith says the debt buyback has got a mixed reception this morning. She writes:

Among economists, analysts and even government officials there is widespread scepticism about the scheme. Speaking on the state-run TV channel NET this morning, finance experts described the buyback operation as “very problematic” with many calling it the most difficult part of the latest EU-IMF backed attempt to rescue Greece.

“A big part of the bonds that have been issued are in the hands of hedge funds,” said prominent economics professor Charalambos Gotsis, adding that investors had acquired them earlier in the summer at very good rates. “With Greece no longer facing the scenario of a Grexit, it is debatable whether they will want to part with them,” added Gotsis who reckoned that hedge funds had acquired around €20bn worth of the government bonds.

Greek banks, which hold an estimated €15bn of the new bonds, have also opposed the scheme claiming it will put them in the onerous position of having to forfeit potential profits.

Their stance prompted Prime Minister Antonis Samaras to insist over the weekend that banks would actually benefit from the deal as the value of the bonds they held was far lower. Samaras, who is acutely aware that Greece’s next €44bn loan tranche is dependent on the buyback (with officials saying it will pare back the country’s debt load by at least €30bn), also quashed speculation that Greek pension funds would be part of the transaction. “The banks’ reaction undoubtedly played a role in the offer being better than expected,” said one insider referring to government prices being more generous than anticipated [as explained at 8.38am]

But, interestingly, Greek finance ministry officials this morning did not rule out the scheme being extended beyond the official close of the deal at 5pm Friday, adds Helena.

‘If it doesn’t go well then logically [the scheme] will be extended,’ said one finance ministry official. ‘But let’s not jump the gun and talk about failure before it has even got off the ground.’


No comment

Looks like we’re having a few technical glitches with the Guardian’s comment system at the moment…. Apologies for that (I don’t think I’ve broken anything). Hoping it will be resolved shortly….


UK manufacturing beats forecasts

The UK’s manufacturing sector has crawled its way back towards growth, with a PMI of 49.7 in November. That’s much better than October’s 47.7, and better than analysts had expected.

Just slightly below stagnation isn’t great – but it suggests the sector might be staging a recovery.


Eurozone recession is deepening – economist

Chris Williamson, chief economist at Markit, warned that the eurozone’s manufacturing sector remains in a “severe downturn”, following the news that the slowdown eased last month (see 9.44am).

Williamson said:

The ongoing steep pace of manufacturing decline suggests that the region’s recession will have deepened in the final quarter of the year, extending into a third successive quarter.

With official data lagging the PMI, the rate of GDP decline is likely to have gathered pace markedly on the surprisingly modest 0.1% decline seen in the third quarter.

There is also reason to be optimistic, though:

Production and employment look set to fall at reduced rates in
coming months as export demand slowly revives in markets such as the US and Asia.


the ongoing uncertainty caused by the region’s debt crisis means business confidence clearly remains fragile and companies continue to focus on tight cost control, meaning any robust recovery still looks a long way off and prone to a set-back if the crisis worsens.


Eurozone manufacturing sector shrinks again

It’s one of those mornings when we’re inundated with manufacturing data for the previous month from across the global economy (via Markit)

Today’s Purchasing Managers Indexes (PMIs) paint a mixed picture – so here are the highlights (and as a reminder, any number below 50 = contraction).

• The eurozone’s manufacturing sector’s PMI of 46.2 for November was the highest since March, but means the sector has now shrunk for the last 16 months

• Germany kept shrinking, with a PMI of 46.8, up from 46.0 in October.

• France’s manufacturing output fell sharply again, with a PMI of just 44.5, up from October’s 43.7. [garble corrected - thanks madeupname2 !]

• Greece’s manufacturing sector continued to contract sharply, with a PMI of just 41.8 (slightly better than October’s 41.0).


Euro up

The euro has risen in value this morning following the Greek debt swap announcement, up nearly half a cent against the US dollar at $1.303.

The single currency has shrugged off the news that Moody’s cut the triple-A rating of the European Stability Mechanism euro rescue fund late on Friday.

But Kit Juckes, Global macro strategist at SocGen, isn’t impressed:


A Greek debt calculator

Those bright sparks at Reuters have created an interactive Greek bond buyback calculator, which lets you work out how much Athens could slice off its debt mountain through the swap.

It’s here.

Remember that the buyback cost can’t exceed €10bn (the maximum amount of new bonds that Greece plans to offer in exchange).

Playing around with it, I can get Greece’s savings up to €52bn….


Interestingly, today’s offer appears to be a little more generous than had been indicated a week ago. When the deal was announced, the eurogroup suggested that Greece would pay no more than the previous Friday’s closing price.

Today’s prices are higher – perhaps an indication that Greece simply can’t let the deal fail.


Greek debt rises in value

Greek sovereign debt is rallying in early trading as traders absorb the details of the bond swap announced this morning.

Via the Reuters terminal:



Those prices are both slightly below the minimum that Greece is proposing to pay (the official statement has the full chart), suggesting some uncertainty over the deal’s chances.

And this image shows how the value of the 2023 bond rose this morning (from just a third of its face value).


See the statement

You can download the official statement from the Greek ministry of finance here (in English).


Greece launches debt buyback scheme

Good morning, and welcome to our rolling coverage of the eurozone crisis – and other key events in the world economy.

We can start with some breaking news: Greece has officially launched a scheme to buy back its debt from private investors.

This scheme is a crucial part of the new deal for Athens agreed a week ago. It needs to succeed to unlock the €44bn of rescue loans due to Greece.

In the last few minutes, The Hellenic Republic ministry of finance announced it will offer holders of Greek debt the chance to swap their bonds for up to €10bn of six-month bills.

Investors will be offered the chance to swap their Greek bonds for a maximum price of between 40.1% and 32.2% of their face value (depending on their maturity). It will work like a “Dutch auction” - with Greece starting with a low offer and raising it until investors bite.

The deal will run all week – concluding at 5pm Friday 7 December. The results will then be announced as soon “as reasonably practicable”.

But the Hellenic Republic also cautioned that the swap can only proceed if it meets “all of the conditions under a financing agreement entered into with the European Financial Stability Facility” – which is providing the funds for the swap.

Finance Minister Yannis Stournaras is due to present the findings to the rest of the eurozone this evening in Brussels.

I’ll be tracking the reaction to the debt swap plan, as well as other key events through the day. That will include a splurge of manufacturing data that will show how global industry is coping with the crisis. © Guardian News & Media Limited 2010

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Demand for Britain’s manufactured goods is being choked off by the prolonged and deepening slump in the eurozone. Events overseas – the US fiscal cliff, China’s slowdown, and the travails of the eurozone casting a shadow over UK manufacturing…

Powered by article titled “Europe to blame for UK manufacturing downturn” was written by Larry Elliott, economics editor, for on Thursday 1st November 2012 12.03 UTC

There’s a one-word explanation for the disappointingly weak survey of manufacturing out on Thursday: Europe.

Despite some modest success recently in diversifying into the faster growing markets of the globe, Britain’s nearest neighbours represent by far the biggest destination for goods sold overseas. Demand for those goods is being choked off by the prolonged and deepening slump in the eurozone.

What’s worse, the uncertainty caused by whether Greece will get a new bailout and whether Spain will have to seek financial help from the European Central Bank is depressing business confidence and causing investment projects to be mothballed. November’s health check on industry from CIPS/Markit showed that demand for capital goods remains weak, and that is wholly consistent with a corporate sector unwilling to spend money until the uncertainty is lifted.

The one bright spot in an otherwise gloomy report was that demand for consumer goods was up. That chimed with recent evidence that spending in the high street is on the up, although the fact that orders for exported consumer goods also rose is something of a puzzle.

As the CBI noted on Thursday, events overseas – the US fiscal cliff and China’s slowdown in addition to the travails of the eurozone – are casting a long shadow over the UK manufacturing sector. There are hopes that China has bottomed out, that the Americans will step away from the fiscal cliff and that Europe is finally getting its act together.

For now though, Thursday’s figures suggest that recovery will remain weak, that rebalancing is a pipedream. At this stage, the City is betting against further stimulus from the Bank of England next week but if the surveys for construction and services are as weak as those for manufacturing there may be a crash re-think. © Guardian News & Media Limited 2010

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U.K. GDP figures for second quarter from Office for National Statistics surprise City analysts who had expected a 0.2% drop. The decline prolongs the first double-dip recession in 30 years and follows the 0.3% fall in the first three months of 2012 and a 0.4% decline in the final quarter of 2011…

Powered by article titled “Shock 0.7% fall in UK GDP deepens double-dip recession” was written by Larry Elliott, economics editor, for on Wednesday 25th July 2012 09.09 UTC

Britain’s economic output collapsed by 0.7% in the second quarter of 2012 as the country’s double-dip recession extended into a third quarter.

Across-the-board weakness in manufacturing and construction coupled with the loss of output caused by the extra bank holiday to mark the Queen’s diamond jubilee were responsible for the setback, according to data from the Office for National Statistics.

Analysts in the City had expected a 0.2% drop in gross domestic product in the three months to June and were stunned by the scale of the fall in activity. The decline followed the 0.3% fall in the first three months of 2012 and a 0.4% decline in the final quarter of 2011.

Construction output dropped by 5.2% between the first and second quarters of 2012, with industrial production falling by 1.3% and service sector output by 0.1%

The first double-dip recession since the mid-1970s – when the UK was beset by high inflation and rising unemployment – meant GDP in the second quarter of 2012 was 0.8% lower than in the same three months of 2011.

Officials at the ONS said it was hard to assess the full impact of June’s additional public holiday on GDP in the second quarter, but officials expect a bounce back from the loss of production in the third quarter, when the London Olympics should also provide a boost to activity.

The news will come as a fresh blow to the chancellor, George Osborne, whose deficit reduction plans have been thrown off course by the poor performance of the economy. Output has declined in five of the last seven quarters.

Osborne said: “We all know the country has deep-rooted economic problems and these disappointing figures confirm that.

“We’re dealing with our debts at home and the debt crisis abroad. We’ve made progress over the last two years in cutting the deficit by 25% and businesses have created over 800,000 new jobs.

“But given what’s happening in the world we need a relentless focus on the economy and recent announcements on infrastructure and lending show that’s exactly what we’re doing.”

The data shocked City analysts. Howard Archer of IHS Global Insight said the figures were “a very nasty surprise indeed”. And Labour were swift to criticise the chancellor. Rachel Reeves, the shadow chief secretary to the Treasury, tweeted that the 0.7% contraction was a “disastrous verdict on George Osborne’s failed plan”. © Guardian News & Media Limited 2010

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