Today in the United Kingdom we saw that the manufacturing sector which represents nearly 15 percent of the gross domestic product (GDP) came in beating market expectations and surprising us all since lately it has been contracting amid the worst financial crisis since the Great Depression.
The London-based Chartered Institute of Purchasing and Supply (CIPS) released the PMI manufacturing for the month of March showing that it rose to 39.1 from the prior reading near record low of 34.7 while analysts were projecting 35.0.
Since the manufacturing sector is showing improvement supports the fact that the contraction in major sectors that fuel economic growth might be close to bottoming out. The rise in the index also shows that the latest measures taken by the government and the central banks to revive lending might actually be helping the sectors ease their contraction.
The manufacturing sector remains in contraction as the reading is still below 50 while higher than 50 would have meant an expansion in the sector, but due to the current economic conditions with frozen credit conditions and crippled domestic demand, forces the manufacturing sector to produce less.
As a result of the main sectors contracting lately pushed the nation to contract by 1.6 percent during the fourth quarter of 2008 which was the worst quarter since 1980 while yet the attention is mostly on the first quarter of this year because this will indicate what kind of recession the UK faces, a long and painful recession or will we start seeing a slower contraction.
There were a couple of reasons for this shrinkage, like mentioned before the contracting sectors, considerable strain in the financial system, rising unemployment that led to curtailed consumption because a weak labor market means that growth prospects are undermined since lower money in Britons hands means less consumption in the economy further holding growth from reviving and last but not least the falling home values.
In other news today we see that the Bank of England released its fourth quarter housing equity withdrawal showing that 8.0 billion pounds were repaid in mortgage loans higher than the 5.9 billion pounds in the prior quarter. This meant that less mortgage loans were being provided for households since still banks continue to hog cash, as long as fewer mortgage approvals are being provided means that the housing sector will continue to spiral downwards as lending becomes impossible.
Britons are now able to keep up with their mortgage installment payments especially since the BoE has slashed interest rates down to 0.50 percent the lowest since the bank's foundation in 1694. The central bank lately has been purchasing gilts using newly printed money as a way to provide tranquility in the banking system and revive the downfall of the UK economy as conditions continue deteriorating faster.
Later on this week we see that the UK is scheduled to release its construction and service sector readings in which both expectations show will remain inline or improve with prior readings. Construction by itself represents 6% while service accounts for three-fourths of the GDP, meaning that when these sectors start to show some recovery will mean that the UK economy might begin recovering by 2010.
Looking at the UK stocks today we see they are heading south as a result of a decline in metal and oil prices which pressured raw-material industries stocks to fall, therefore dragging down the FTSE as a whole. As of 09:52 GMT the FTSE 100 Index shed 25.56 points or 0.65% to 3,900.58 points.