Factories struggle as world demand sputters

Mon Aug 1, 2016 6:37am EDT
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By Jonathan Cable and Wayne Cole

LONDON/SYDNEY (Reuters) - British manufacturers slammed on the brakes last month after the Brexit vote and growth eased in the euro zone, surveys indicated, with factories in China, Japan and elsewhere in Asia offering only crumbs of comfort.

A U.S. version due later Monday would have to be unexpectedly robust to make up for a downbeat GDP reading released last week.

The latest UK Purchasing Managers' Index, compiled by Markit, will give the Bank of England more impetus to cut interest rates after it surprised markets by holding fire in July but said most policymakers were leaning towards stimulus in August.

"Markit said that the deterioration was widespread across sectors and firm sizes, suggesting that Brexit uncertainty was weighing on many firms. The overall negative tone of the survey reinforces the case for a monetary loosening at Thursday's MPC meeting," said Scott Bowman at Capital Economics.

All but three of 49 economists in a Reuters poll last week expect the Bank to cut interest rates by at least 25 basis points on Thursday, but economists were divided on whether it would restart its bond-buying program. [BOE/INT] ( reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?RIC=GBBOEI%3DECI )

Signs of a sharper slowdown in the euro zone, outside powerhouse Germany, may also add to calls for the European Central Bank to loosen policy again after it kept interest rates unchanged last month.

The ECB did leave the door open to more stimulus, highlighting "great" uncertainty and abundant risks to the economic outlook. A Reuters poll found that it will soon be forced to extend and expand the scope of its asset purchase program. [ECILT/EU] ( reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/cb-polls?RIC=EUECBR%3DECI )

The fitful global performance was clearly on the mind of William Dudley, a top policy maker at the Federal Reserve, who used a speech in Indonesia to urge caution on raising U.S. interest rates.   Continued...

Employees work at a production line inside a factory of Saic GM Wuling, in Liuzhou, Guangxi Zhuang Autonomous Region, China, June 19, 2016. REUTERS/Norihiko Shirouzu/File Photo