UK manufacturing activity hits 26-month low

| September 1, 2011

The Chartered Institute of Purchasing and Supply (CIPS)/Markit manufacturing purchasing managers’ index (PMI) has today revealed UK manufacturing activity contracted at the fastest pace in more than two years in August.

The closely-watched CIPS/Markit manufacturing PMI fell to 49.0 last month from an upwardly revised 49.4 in July.

The latest figure means the index remains below the crucial 50 mark for the second consecutive month, which implies contraction within the sector.

However, the reading was slightly better than forecasts for a reading of 48.6.

The further slowdown was attributed to a sharp fall in demand for exports.

The manufacturing sector, which accounts for around 13% of economic output, has been one of the bright spots in the UK economy but today’s figures will raise fears about the strength of the economic recovery.

Commenting on the data, Markit senior economist, Rob Dobson, said: “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.”

The PMI survey showed deteriorating global economic conditions have hit demand for British goods with the new export orders index diving more than 7 points to 46.6 – the fastest decline since May 2009.

Meanwhile, official data last week revealed the economy grew by just 0.2% in the April to June period.

Growth for the second quarter slowed from the 0.5% growth posted in the first quarter.

Today’s figures are likely to reinforce expectations that the Bank of England will leave interest rates at their record low of 0.5% when it meets next week.

However, it will fuel speculation that the central bank may consider a fresh round of quantitative easing (QE) – a scheme designed to boost the economy.

Construction activity and service sector activity figures will be published later this week.

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