Politics 1 September 2011 The bad economic news keeps flooding in UK manufacturing output hits a 26-month low as growth forecasts are cut again. Print HTML The bad economic news keeps flooding in on a daily basis -- but there's still no response from George Osborne. Manufacturing had been booming -- not least because of exports driven by the significant depreciation in the pound -- but that appears to be heading into reverse. Today's PMI for UK manufacturing fell to a 26-month low. Production fell for the first time since May 2009, as new order inflows declined at the most marked pace in almost two and a half years. The trend in new export business was also substantially weaker than just one month ago. Manufacturers linked the reduction to weak domestic demand, rising global economic uncertainty and lower levels of new export business. Rob Dobson, senior economist at Markit, commenting on the data, argued: "The second half of 2011 has, so far, seen the UK manufacturing sector, once the pivotal cog in the economic recovery, switch into reverse gear . . . The sudden and substantial drop in new export orders is particularly worrisome, with UK manufacturers hit by rising global economic uncertainty, just as austerity measures are ramping up at home. As consumer and business confidence are slumping both at home and abroad, it is hard to see where any near-term improvement in demand will spring from." Then, today, the British Chambers of Commerce cuts its growth forecast. They are now expecting GDP growth of 1.1 per cent in 2011 (down from 1.3 per cent) and 2.1 per cent in 2012 (down from 2.2 per cent), rising to 2.5 per cent in 2013. This is much less than the Office for Budget Responsibility, for example, which is forecasting 1.7 per cent in 2011 and 2.5 per cent in 2012. This lowering of the growth forecast is consistent with evidence from Grant Thornton's UK Business Confidence Monitor for Q3 2011, conducted between 3 May and 29 July 2011, which showed that business confidence had fallen sharply. The confidence index stands at 8.1, down from 13.7 in Q2 2011 to its lowest level since Q3 2009. The Confidence Index has been on a downward path since a post-recession bounce-back that started in late 2009 and peaked in the first half of 2010, just as this coalition government took office. Notably, the survey suggested that business confidence in the manufacturing and engineering sectors was "relatively downbeat" and continued to weaken. And then there were some really daft comments from Andrew Sentance in an op-ed piece in the Wall Street Journal, in which he argued against further stimulus. "The global economic recovery has been under way for about two years . . . Monetary policy needs to shift away from the emergency settings that were put in place to halt sharp falls in demand in late 2008 and 2009. The deflationary risks that were then a worry have now receded. Indeed, in some countries -- such as the UK -- persistent inflation is now the bigger worry . . . further stimulus of the demand side would be a move in the wrong direction. It may appear to offer the prospect of short-term respite from economic difficulties. But it will not help us secure the conditions for sustainable growth and lasting economic recovery." Yes it will. Sentance couldn't be more wrong -- as data from the past few days has made clear, the global economy is slowing fast. It is now apparent that his votes for increasing interest rates at his last 12 meetings were completely misguided as growth plummets and unemployment rises. The UK now has a growth problem, rather than an inflation problem. Wrong on interest rates and wrong on austerity. Ed Balls had it right today on the World at One: "If you adjust for the high oil prices [and] the fall in the exchange rate, underlying inflation in Britain today is very low indeed. That is reflected in long-term interest rates being very low. Why is that? Because our economy isn't growing . . . Manufacturing output is down and, all around the world in America, in Europe and in Britain, the challenge for central bankers is to do what they can with monetary policy to support growth and get things moving again. The trouble is, in the very unusual global situation we're in, it is hard for interest rates to do that job. That is why there is a challenge to fiscal policymakers to act, as well." Now is the time for the coalition to act to stimulate growth. › Web Only: the best of the blogs David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire Subscribe More Related articles Is our obsession with class propping up the powerful? The case against TTIP There is radical potential in revitalising adult education – why are we letting it disappear?