UK manufacturing activity contracts in October

| November 1, 2011
”UK

The Chartered Institute of Purchasing and Supply (CIPS)/Markit manufacturing purchasing managers’ index (PMI) has today revealed UK manufacturing activity contracted last month.

The closely-watched CIPS/Markit manufacturing PMI sank to 47.4 in October from September’s reading of 50.8.

Today’s survey means the index has fallen below the crucial 50 mark – which separates growth from expansion.

Furthermore, the index is now at its lowest level since June 2009 – when the economy was still in recession – and suggests a weak start to the final quarter of 2011.

Chris Williamson, chief economist at Markit, said there is a “significant risk” of the economy contracting in the fourth quarter and this follows similar observations made last week by Martin Weale and Paul Fisher, who are both members of the Bank of England’s Monetary Policy Committee.

The manufacturing sector accounts for around 13% of economic output.

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

In other news today, the Office for National Statistics (ONS) revealed the UK economy expanded by a better-than-expected 0.5% in the July to September period.

This compares with a 0.1% growth rate for the second quarter and was better than the 0.3% expected by most economists.

The better performance was attributed to production sector output, which rose 0.5% in the three month period, versus a 1.2% decline in the previous quarter.

Meanwhile, business services and finance were the biggest contributor to overall growth in the period, expanding by 0.8%, the Office for National Statistics said.

However, the better than expected figures should not be regarded as an economic rebound since it compares with a second quarter which was hit by “special factors” such as the Royal Wedding and Japanese tsunami which trimmed as much as 0.5 percentage points from quarterly growth, analysts’ said.

Analysts also point out that the third quarter growth was still weak, at just 0.5%, and the outlook remains bleak.

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