Factory slump may influence UK rate rise timing

A slump in manufacturing in July and a sharp widening of the trade deficit show Britain’s economic recovery is losing some steam and may prompt the Bank of England to stress that it is in no rush to raise interest rates from crisis-era lows.

Factory output suffered its first year-on-year fall in nearly two years, hit by an earlier than usual summer shutdown of vehicle production lines but also by weaker demand from other major economies, reflecting concerns about global growth.

Exports of goods dropped by more than 9%, the biggest fall since July 2006, the Office for National Statistics said.

The Bank of England’s interest rate-setters are due to vote on whether to raise interest rates from their record low 0.5% for the first time in six years.

The decision, due to be announced tomorrow, is expected to be a repeat of August’s 8-1 vote in favour of no change.

David Tinsley, at UBS, said the slowdown in the world economy appeared to be taking its toll on Britain.

BoE governor Mark Carney has said a decision on whether to raise interest rates will “come into sharper relief” around the end of the year.

Economists expect a first hike in early 2016 but a slowdown in China’s economy or a delay to plans for a first rate hike in the US could push that back.