Vital signs worry

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Our first look at the UKs vital signs in August unfortunately does not provide much positive news. Today's Markit economics release shows the UK manufacturing PMI has hit a 38-month low of 45.4.

Below the headline figure, UK output and orders fell sharply as did input prices. Selling prices continued to rise and employment rose slightly. The employment story is somewhat interesting; despite poor indicators manufacturers continue to increase employment, leaving us with a question to ponder – does this suggest manufacturers are planning for things to pick up later on this year? Or is this a temporary adjustment to complete existing order?

The big worry is that UK demand is being hammered by persistent weakening in key Eurozone markets and slower growth in the US and emerging economies. On our blog tomorrow we will look at how the UK PMI compares internationally.

Last week we saw that the recent falls in official data can in a large part be attributed to the one-off Jubilee celebrations. Falls of the extent experienced should not have been unanticipated and were, in fact, better than previous Jubilee celebrations.

However, the weak PMI for the UK places a significant question mark over whether we will see the bounce back we need in the second half of the year. Getting growth back on track needs to be a priority for the government.

The recess comes at a good time. It offers the perfect opportunity for the government to crystallise and be ready to provide more clarity on how it plans to get the economy growing again.

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