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UK manufacturing PMI drops to 50.5 in April

Growth slowed as new export orders fell at steepest pace since May 2009.

The seasonally adjusted UK manufacturing purchasing managers' index (PMI) fell to 50.5 in April 2012, below March’s revised reading of 51.9, according to a survey of 600 industrial firms conducted between 12 and 25 April 2012 by Markit and the Chartered Institute of Purchasing & Supply (CIPS).

A PMI of above 50 implies that the sector is experiencing growth, and below hints at contraction.

Total new order books fell slightly for the first time in five months in April due to a sharp decline in new export business - the steepest since May 2009 - resulting from weaker demand from mainland Europe, the US and East Asia. In contrast, average output price inflation continued to accelerate in April.

This month survey data signalled that manufacturing employment edged higher, with a marginal increase in payroll numbers reported for the fourth successive month.

After rising at a survey record rate in March, stocks of finished goods fell slightly during the latest survey period. Manufacturers linked lower holdings to slower growth of output and settling existing contracts from inventories. Stocks of raw materials also fell during April, as purchasing volumes stagnated after a four-month period of increase.

Rob Dobson, senior economist at Markit and author of the Markit/CIPS Manufacturing PMI, said:

The UK recovery was always likely to be bumpy and subdued. This is still very much the case at manufacturers, with the April PMI indicating that growth of the sector eased to its weakest in the year-to-date. Although the expansion in output is a positive in itself, as is a modest increase in employment, manufacturers are still sustaining growth through past demand, a circumstance that cannot continue indefinitely.

What manufacturers really need to see is a marked improvement in new order inflows, so April’s sudden sharp drop in new export orders was a real disappointment. It seems that weaknesses in our major trading partner, the Eurozone, are starting to hit home, especially for consumer goods producers. This further highlights the impact of ongoing weakness in the European household sector already signalled by Markit’s UK Household Finance Index and the Eurozone Retail PMIs.

David Noble, CEO at CIPS, said:

A sharp decline in export demand has led to a slowdown in UK manufacturing growth, placing the sector in a more delicate position compared to the start of the year. Although still in positive territory, manufacturers reported a slowdown in activity, characteristic of continued problems and poorer consumer confidence across the Eurozone.  The easing of new orders from the US and Asia, is perhaps even more worrying as a potential risk to continued growth, as these have helped to balance out weaker demand in recent months.

Despite tougher conditions overall, some companies were still able to increase headcount this month, courtesy of increased output and new product lines.  The health of order books during the next few months will be the critical factor if overall employment levels are to stay on an even keel.

On a more positive note, this month’s slower increase in input prices is likely to offer some relief, with many manufacturers being forced to respond to last month’s rising oil prices by passing on costs at the highest rate for seven months despite increased market competition.”

The Markit/CIPS UK Manufacturing PMI is a composite index based on five of the individual indexes with the following weights: new orders (0.3), output (0.25), employment (0.2), suppliers’ delivery times (0.15), and stock of items purchased (0.1), with the delivery times index inverted so that it moves in a comparable direction.

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.