UK Manufacturing Output Falls, Raises Risk of Prolonged Recession

Manufacturing output in the UK surprised to the downside in April, as the export orders of the country declined due to slowing eurozone economy, putting the British economy at a risk of prolonged recession.

UK Purchasing Managers' Index (PMI) fell to 50.5 in April from a downwardly revised reading of 51.9 in the previous month, Markit Economics data showed on Tuesday. Markets had expected the index to fall slightly to 51.4 in the month.

Recent downbeat data in the UK is further intensifying the debate over the further monetary easing by the Bank of England (BoE), although the central bank's April meeting minutes showed that only one of the nine-member Monetary Policy Committee (MPC) voted in favor of further quantitative easing (QE).

The UK economy unexpectedly contracted in the first quarter this year, showing that the country technically re-entered a recession. Britain's gross domestic product (GDP) fell 0.2 percent in the January-March quarter, while it shrank by 0.3 percent in the fourth quarter last year, the Office of National Statistics data showed on April 25.

"The poor Q1 UK GDP data led to the inevitable flood of headlines that the UK economy had fallen back into a double-dip recession. The usual corollary of such news would be heightened expectations of further policy easing. In the short term, we think that unlikely but later in the year a renewed debate about more QE might take place," said a note from the Societe Generale Cross Asset Research on Monday.

The British pound (GBP) extended its losses for the second day against the euro (EUR) and the U.S. dollar, following the release of the PMI data.

"GBP's run of outperformance stopped today on disappointing PMI manufacturing data, though EUR/GBP remains within a downtrend and GBP/USD within an uptrend, both of which have held for the last month," said a note from RBC Capital Markets.