HOPES that the dramatic fall in the pound has provided a significant boost to British manufacturers will be dashed this week when two key surveys show they are now in deep recession.
Policymakers had expected the pound's plunge against the euro and the dollar to lift the manufacturing sector, but the latest official output figures to be released this Tuesday are likely to show a decline in production for the eighth consecutive
month.
Howard Archer, chief UK and European economist at Global Insight, says any benefit from the pound's devaluation since the summer has been more than offset by dampening consumer and industrial demand in key markets such as the US and Europe.
"The sector is now clearly in serious recession," he said.
"Manufacturers are being hit hard by depressed domestic demand, very weak activity in key export markets, tight credit conditions and intense competition."
UK manufacturing output is expected to have dipped by a further 0.4% in October, representing a year-on-year decline of 3%.
The Confederation of British Industry's monthly industrial trends survey, published this Thursday, will confirm the dismal situation facing UK manufacturing.
A sharp reduction in both foreign and domestic orders is expected to show that the balance of manufacturers reporting that their overall orders are at normal levels has deteriorated to -45%, from the five-year low of -38% in last month's survey.
This will disappoint policymakers who had been hoping that the devaluation of the pound would provide some positive benefits for the UK economy. The pound experienced further staggering falls this week.
It is now 20% lower against the euro compared with last year, while it has fallen 30% against the dollar since the summer, when it hit a peak of $2 to the pound.
Foreign exchange traders warn that worse falls are to come, with the brokerage Blue Index even suggesting the UK could see a one pound euro in the coming months as the recession kicks in and the Bank of England is forced to make further dramatic interest rate cuts.
Meanwhile, retailers are also bracing themselves for more bad news this week, with the British Retail Consortium's latest sales monitor likely to show that the value of high street sales has plunged further into negative territory.
Total retail sales values dropped by 0.1% between October 2007 and 2008, marking the first annual decline since August 2005.
"It is highly possible that the figures for November will be even worse," said Archer.
