UK manufacturing shrinks at fastest rate since 1992

According to the Chartered Institute of Purchasing and Supply’s (CIPS) purchasing managers’ index, the UK’s manufacturing sector is now shrinking at the fastest rate since records began in January 1992.

Last month the index fell to 41, the lowest reading ever and any reading under 50 indicates a contraction.

The survey will no doubt increase fears that the UK is entering a recession. Figures yesterday from the Office for National Statistics (ONS) revealed that the UK economy has come to a standstill after it did not grow at all in the second quarter of 2008.

Some economists believe that the economy has contracted in the current three months and will continue to do so in the last quarter of 2008, meeting the technical definition of a recession.

The bad news leads analysts to believe that the Bank of England may lower interest rates from 5% to 4.75% when it meets next week. Rates have remained the same since April in a bid to curb runaway inflation, which is currently at 4.4%.

Meanwhile, the figures from CIPS mark the fifth month in a row of contraction in the manufacturing sector.

Howard Archer of Global Insight said there is serious weakness in all aspects of the survey, with output, new orders, and backlogs of work all contracting at the fastest rate since the survey began.

The CIPS survey illustrates the challenges that British manufacturers are facing in the current economic climate.

The worst hit was the consumer goods sector with output and new orders down sharply. The Output Index fell to 41.2 from 47.6, with manufacturers attributing the fall to lower volumes of new business.

The survey also found that companies have begun to reduce headcount.

Meanwhile, carmakers Ford and Land Rover have introduced a four-day working week blaming the tough economic climate.

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