Out-Law News 1 min. read

Manufacturing sector shows signs of slowdown, figures suggest


Manufacturing actiity in the UK fell to a "26-month low" with output, new orders and employment all declining according to figures from financial analysts Markit and the Chartered Institute of Purchasing and Supply (CIPS)

The Markit/CIPS UK Manufacturing Purchasing Managers Index (PMI), which measures changes in activity levels across hundreds of manufacturers, fell to 49.0 in August indicating a second month of contraction in the sector.

This was "the lowest reading for 26 months", according to the report.

The PMI is based on a monthly survey of purchasing executives at more than 600 firms.

Although consumer goods output rose at the "strongest pace for five months", the report indicated that the sector remained weak overall.

The volume of new orders to the sector declined for the fourth month running, with the sharpest rate of contraction since April 2009 according to the figures.

Manufacturers linked the reduction to weak domestic demand, rising global economic uncertainty and lower levels of new export business the report said.

Employment in the sector fell for the first time in 17 months, reflecting these declines. However the rate of job losses was "only modest".

The Eurozone MPI also fell to 49 in August from 50.4 in July. It is the first time since September 2010 that the index has fallen below the 50 mark that divides growth from contraction.

"The second half of 2011 has so far seen the UK manufacturing sector, once the pivotal cog in the economic recovery, switch into reverse gear," said Rob Dobson, senior economist with Markit.

"The sudden and substantial drop in new export orders is particularly worrisome, with UK manufacturers hit by rising global economic uncertainty just as austerity measures are ramping up at home. As consumer and business confidence are slumping both at home and abroad, it is hard to see where any near-term improvement in demand will spring from."

Dobson was cautiously optimistic about a slowdown in the price of commodities and input costs also reported by the data.

"This provides support to the Bank of England's belief that inflationary pressures are temporary and offer room for manoeuvre if any further stimulus is required," he said.

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