European manufacturing sector slide worst since the start of the Covid-19 pandemic

Europe’s manufacturing sector fell deeper into decline with the Continent recording its fastest contraction since Covid-19.

Data showed activity in the sector last month dropped to its lowest level since May 2020.

The purchasing managers index (PMI) recorded a reading of 42.7 for July, down from 43.4 the previous month. A reading below 50 indicates a contraction.

Germany was particularly weak, while both France and Italy also saw marked reductions.

The decline came as factories across the Continent suffered the knock-on effects of inflation, persistent labour shortages and shifts in consumer demand.

Things were little better in the UK, with the PMI for the manufacturing sector contracting at its fastest pace in seven months, dropping to 45.3 in July from 46.5 in June as it was hit by higher interest rates and low numbers of new orders.

The data also marked the 12th month in a row that the sector had registered a decline, sparking warnings from bosses that manufacturing was facing a recession.

But a former member of the Bank of England’s financial policy committee said an economic contraction may be the only way to bring inflation back down to the central bank’s target of 2 per cent.

Alex Brazier told the BBC that inflation had become ‘entrenched’ and ‘to be honest, getting inflation to 2 per cent – the Bank’s target – probably does entail a further growth slowdown or recession and higher unemployment’.

The Bank of England meet tomorrow, where it is widely expected to raise rates to at least 5.25 per cent from 5 per cent.