But in the UK, poor manufacturing PMI survey hits sterling as growth in sector stalls
Shares on Wall Street powered to their highest level since the early days of the global financial crisis on Tuesday night after upbeat news from American factories boosted hopes of recovery in the world’s biggest economy.
Giving a fillip to the City after a less-good health check on the state of Britain’s manufacturing sector, the Dow Jones industrial average put on more than 100 points in morning trading in New York to rise above 13,300 points.
The boost to financial markets was provided by the monthly survey by the US Institute of Supply Management, whose index of manufacturing activity confounded predictions of a small decline by rising from 53.4 to 54.8 last month. A reading above 50 indicates that the sector is expanding.
In the City, the FTSE 100 index of leading shares closed 74.45 higher at 5812.23, with disappointment at the poor performance of British industry reflected in a fall in sterling rather than in the equity market.
UK manufacturing growth slowed to a virtual standstill last month after a drop in new orders from the eurozone hit confidence across the sector.
The Markit/CIPS Manufacturing Purchasing Managers’ Index (PMI) dropped to 50.5 in April from a downwardly revised 51.9 in March, keeping the sector just above the 50 level which separates growth from contraction.
The reading, the lowest since December, will disappoint the chancellor, George Osborne, who is already reeling from news last week that the UK has entered a double-dip recession after two consecutive quarters of negative growth.
Economists had forecast only a small dip in growth to 51.5 after a string of positive surveys through February and March had raised hopes of a recovery. The weak data could force the Bank of England’s monetary policy committee (MPC) to reconsider its view that the economy is strong enough to move ahead without further quantitative easing (QE).
Markit said the crisis in Europe was hurting British factories. Although activity did expand in April for the fifth month running, the data also showed the sharpest fall in new export orders since May 2009.
“What manufacturers really need to see is a marked improvement in new order inflows,” said Rob Dobson, senior economist at Markit, which compiles the PMI survey.
“It seems that weaknesses in our major trading partner, the eurozone, are starting to hit home, especially for consumer goods producers,” he added.
Labour has blamed the return to recession on government policies that have rejected stimulating the economy in favour of cuts in public spending and investment, rather than supporting manufacturers and the wider economy during turbulent times for the world economy.
Osborne and the prime minister, David Cameron, have gone on the offensive in recent days to blame the weakness on the euro crisis. Cameron went further in dampening people’s expectations before local elections on Thursday, saying the euro crisis would take several more years to overcome.
At its last meeting, the MPC appeared to back way from further purchases of government bonds to stimulate lending after nearing the end of a £325bn bond purchasing programme. It meets again next week.
A strengthening in sterling to its highest in more than two and a half years posed another threat to exporters by either sapping foreign demand for British wares or squeezing firms’ profits via lower prices.
Production of consumer goods fell, while output of intermediate products such as car engines and investment goods such as factory equipment both rose.
Factory gate price inflation reached a seven-month high, even though manufacturers’ costs rose at a much slower pace than in March. That may encourage hawks on the MPC to oppose calls for more QE.
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