Demand for Britain's manufactured goods is being choked off by the prolonged and deepening slump in the eurozone
There's a one-word explanation for the disappointingly weak survey of manufacturing out on Thursday: Europe.
Despite some modest success recently in diversifying into the faster growing markets of the globe, Britain's nearest neighbours represent by far the biggest destination for goods sold overseas. Demand for those goods is being choked off by the prolonged and deepening slump in the eurozone.
What's worse, the uncertainty caused by whether Greece will get a new bailout and whether Spain will have to seek financial help from the European Central Bank is depressing business confidence and causing investment projects to be mothballed. November's health check on industry from CIPS/Markit showed that demand for capital goods remains weak, and that is wholly consistent with a corporate sector unwilling to spend money until the uncertainty is lifted.
The one bright spot in an otherwise gloomy report was that demand for consumer goods was up. That chimed with recent evidence that spending in the high street is on the up, although the fact that orders for exported consumer goods also rose is something of a puzzle.
As the CBI noted today, events overseas – the US fiscal cliff and China's slowdown in addition to the travails of the eurozone – are casting a long shadow over the UK manufacturing sector. There are hopes that China has bottomed out, that the Americans will step away from the fiscal cliff and that Europe is finally getting its act together.
For now though, today's figures suggest that recovery will remain weak, that rebalancing is a pipedream. At this stage, the City is betting against further stimulus from the Bank of England next week but if the surveys for construction and services are as weak as those for manufacturing there may be a crash re-think.
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