Pound falls as manufacturing slump paves way for triple-dip

THE SPECTRE of a triple-dip recession has been raised again by a "shock contraction" in the UK's manufacturing sector, the Daily Telegraph reports.

The bad news caused the pound to sink by almost a cent against the euro, and one-and-a-half cents against the dollar today, as it became clear the ailing manufacturing sector is likely to act as a drag on the UK's economic growth in the first quarter of 2013.

The "closely watched" Markit/CIPS UK manufacturing PMI index tumbled to 47.9 in February, from 50.5 in January. Any reading below the 50 mark signifies contraction as opposed to growth, says The Times. Markit said output and new orders both fell in February and purchasing activity was also cut markedly as manufacturers continued to show a preference for holding less stock.

The number of people employed in manufacturing also dropped at the quickest pace in more than three years.

Chris Williamson, chief economist at Markit, said the data represented a "major set-back to hopes that the UK economy can return to growth in the first quarter and avoid a triple-dip recession".

The tumbling pound – which fell 0.8 per cent against the dollar today to $1.5048 and 0.7 per cent against the Euro to €1.1511 – is at its lowest level against the greenback in more than two-and-a-half years. The Times notes that sterling has lost a total of 7.45 per cent against the dollar this year and was hurt again earlier this week after Moody's stripped Britain of its triple-A credit rating.

Analyst Morgan Stanley has said sterling could fall even further, slipping below the $1.50 level and "opening the way" to an exchange rate of between $1.47 and $1.46.

Williamson said there was still cause for cautious optimism because the manufacturing index had been affected by the "knock-on effect" of bad weather in the UK and a contraction in global "trade flows" caused by the Chinese New Year. He said there were "good reasons" to believe that manufacturing might pick up again in March and said the weak pound might help British exports. ·