BOE Pressured to Cut Interest Rates as Manufacturing Slumps

• NIESR have disturbing revelations for the future of the UK economy


• Brexit strikes again

According to figures released today, activity in the UK manufacturing sector experienced a major slump in in July. The CIPS/Markit UK manufacturing PMI fell by 8% from its July value of 52.4, as it reportedly came in at 48.2, the results have currently raised the pressure currently mounted on the Bank of England to cut interest rates in their meeting on Thursday.

The National Institute of Economic and Social Research (NIESR) has cautioned that, the most recent development heightens the need for the Bank of England to more actively wrestle the possibility of a major slump in the UK economy resulting from the UK referendum to leave the EU.

In a very disturbing analysis of the British economy conducted by the NIESR after the Brexit vote, they revealed that over the course of the first three quarters in 2017, 320,000 jobs would be lost. They further stated that there was a 50% likelihood that in the next 18 months the UK will fall into recession.

“Off the back of equally disappointing manufacturing figures, today’s numbers confirm that the UK economy is slowing. Although not currently our base case, if current levels for the PMIs are sustained, we may need to brace ourselves for a mild recession by the end of the year”, Dean Turner, Economist at UBS Wealth Management, said stating that we need to prepare ourselves for "a mild recession".

The NIESR also added that, inflation will increase with a rate above 3% for the first time in 5 years towards the end of 2017 as the faltering GBP will bolster the cost of imports and the government will have no choice but to borrow another £47 billion within the coming 4 years. NIESR is also of the opinion that there would be a 0.2% fall in the economic growth rate for the current quarter from the 0.6% in the last 3 months and growth will remain fixed for the rest of the year. Economic growth predictions for the whole of next year has been pinned at 1% but they fear that the situation could become worse. The NIESR report also contains a series of business surveys including a survey that reveals the UK economy decreasing at its swiftest rate since 2009.

"These figures would indicate that the uncertainty deterring manufacturers from making vital investment decisions prior to the EU referendum has taken a stranglehold since the vote and we can expect to see businesses continuing to protect cash and guard investment. Such caution is of course understandable and encouragingly the expected rise in exports, given the weaker state of sterling, is materialising but with growth in the sector being very hard-earned, manufacturers will want clarity on what post-Brexit means for their industry sooner rather than later," said Mike Rigby, head of manufacturing at Barclays.