UK manufacturing sector in dangerous tailspin

Manufacturing in Britain took a nosedive last month while spending on credit cards posted its smallest rise in four years, according to figures released yesterday which point to a widespread economic slowdown.

But there was a glimmer of hope from a rebound in mortgage approvals that pointed to a revival in the housing market in coming months. UK factories suffered their worst fall in activity since the country was preparing for the Iraqi war two years ago, according to a snapshot survey of 620 manufacturers.

The Chartered Institute of Purchasing and Supply (Cips) said its index of activity posted its lowest reading for more than two years. Analysts said the survey probably marked the first impact of the collapse of Rover on the economy. It said the second successive monthly fall was "indicative of a solid rate of overall contraction".

Output fell for the first time in two years, new orders fell back, while firms were forced to cut both jobs and prices, it said.

Roy Ayliffe, a director of Cips, said: "Manufacturers reported a decline in output for the first time in over two years and in spite of a marked easing in cost inflationary pressure, output prices declined for the first time in 20 months."

The survey comes a few days after the Office for National Statistics said factory output in March slumped by 1.6 per cent, the worst fall for a decade excluding the impact of the 2002 Golden Jubilee. The headline index has now tumbled by 7.5 index points since its recent peak in December, the steepest six-monthly fall since mid-1998, when the Bank reacted by cutting rates aggressively.

"The survey was dreadful," said Vicky Redwood, UK economist at Capital Economics. "The sector is far from ready to take over from consumer spending in driving economic growth. Interest rates are already expected to stay on hold next week but we continue to think that before long the monetary policy committee will be voting for a rate cut."

There was mixed evidence on the health of the British consumer, with unsecured borrowing and retail sales showing continued weakness but an upturn in mortgage approvals pointing to stabilisation in the housing market.

Credit card borrowing rose by just £316m in April, the Bank of England said, making it the smallest increase since June 2001. It contributed to a slowdown in overall unsecured borrowing to £1.3bn from £1.9bn in March and the weakest monthly rise since December 2003.

The number of visitors to the UK's main shopping centres over the bank holiday was lower than a year ago. May recorded the worst month since the start of the decade for retail traffic numbers in London and the South-east, said the analysts SPSL.

There was some upbeat news from Bank figures on mortgage lending showing that approvals for new loans rose to a nine-month high of 95,000 in April.

- INDEPENDENT