03 Jun 2014

ECB rate cut near certain as manufacturing figures slip

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Eurozone manufacturing growth slowed more than initially thought last month, a business survey showed yesterday, fuelling expectations that the European Central Bank (ECB) will ease policy this week.

Markit’s final Manufacturing Purchasing Managers’ Index (PMI) slipped to a six-month low of 52.2 in May from 53.4 in April as strong figures from Germany failed to offset a contraction in activity in France. Figures for Ireland will be published this morning.

The final figure was below the initial reading of 52.5 but held above the 50 mark that separates growth from contraction for the 11th straight month. A subindex measuring output fell to 54.3 from 56.5, weaker than the initial reading of 54.7.

“The May drop in the manufacturing PMI will inevitably add to the clamour for policymakers to provide a renewed, substantial boost to the region’s economy and ward off the threat of deflation,” said Chris Williamson, Markit’s chief economist.

To spur growth and boost lending, the ECB is widely expected to cut its deposit rate to below zero, reduce its main borrowing rate and launch a refinancing operation aimed at businesses when it meets on Thursday.

The tepid overall growth was again supported by Germany, the eurozone’s largest economy. The pound rose against the euro after British manufacturing activity kept expanding at a rapid pace in May, suggesting the economic recovery in our biggest market has lost little of its shine this quarter.

Pre-crisis

The index inched down in May to 57.0 from 57.3, but stayed far above the 50 line that divides growth from contraction. New orders piled in at a healthy rate and manufacturers took on more staff, albeit at a slightly slower pace than in April.

Survey compiler Markit said British manufacturing production is expanding at a quarterly rate close to 1.5pc, although the sector is still around 7.5pc smaller than its pre-crisis peak. (Reuters)

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