British economy faces mixed outlook as inflation eases but manufacturing declines in March

Tue 4 Apr 2023
Posted by: Phillip Adnett
Trade News

Worker in factory manufacturing goods with power tools

British manufacturing slipped deeper into decline in March, but firms remain more optimistic about the future as cost pressures and supply chain problems eased, according to freshly released economic data.

The S&P Global/CIPS UK manufacturing purchasing managers’ index (PMI) fell to 47.9 from 49.3 in February. Readings below 50 indicate a contraction in activity.

Reuters reports the gauge of costs paid by manufacturing eased to its lowest level since June 2020.

Exports weak

However, Rob Dobson, director at S&P Global Market Intelligence, said declining new export order intakes “remained a significant drain on demand, offsetting signs of a modest revival in the domestic market”.

Dr John Glen, chief economist at the Chartered Institute of Procurement & Supply, told City AM that March was “a month of two halves”, with supply chain improvements coupled with continued weakness in new orders.

Gabriella Dickens, senior UK economist at Pantheon, said the manufacturing output boost in March was caused by firms working through order backlogs and would not last much longer.

She predicted business investment would remain weak this year, due to higher interest rates and the government’s late announcement of full capital expensing in the budget.

European gloom

The Eurozone saw marginal growth in manufacturing output with the output index at a 10-month high of 50.4, up slightly from 50.1 in February.

However, the overall PMI was gloomier, down from 48.5 in February to 47.3 in March – a four-month low.

At a national level, the picture was more mixed. Some countries, such as Greece and Spain grew, while others struggled.

Germany, Europe’s powerhouse economy, posted a 34-month low with a reading of 44.7 on the manufacturing PMI index, and France was also still in decline at 47.3, a five-month low.

Rates decisions

Reuters reports six interest rate hikes in March across eight meetings by central banks overseeing the 10 most heavily traded currencies.

Australia, Switzerland, Norway and the UK joined the US and the European Central Bank in lifting lending rates by a total of 200 basis points.

March saw the collapse of two US banks, with the takeover of the bank Credit Suisse by UBS raising concerns over financial stability.

The world’s top central bankers are contemplating an early end to their rate hikes in response, but OPEC’s decision to cut oil production sent prices surging, adding to inflationary pressure.

Inflation

However, despite this move, Eurozone annual inflation fell sharply from 8.5% in February to 6.9% in March, largely as a result of plunging energy prices, which eased pressure on the cost of living, reports the Guardian.

The EU’s statistical agency Eurostat said core inflation, which excludes items such as fuel and food, rose slightly from 5.6% to a new record high of 5.7%.

Inflation data for the UK for March has not yet been published, but figures for February showed headline inflation rising from 10.1% to 10.4%, while core inflation rose from 5.8% to 6.2%.