Fall in factory output puts upturn at risk

BRITAIN&rsquo;S manufacturing recovery yesterday demonstrated its fragility as a key survey showed that UK factory activity unexpectedly shrank in August, with growth in new orders slowing and employers cutting jobs and inventories.<br /><br />The CIPS/Markit manufacturing purchasing managers&rsquo; index (PMI) slipped back to 49.7 and below the critical 50 mark that separates expansion from contraction.<br /><br />Analysts had been expecting a rise to 51.5. July&rsquo;s reading was also revised downward to 50.2 from 50.8.<br /><br />Rob Dobson, senior economist at Markit, said: &ldquo;Slower growth of new orders, continued substantial job losses and the surprising weakness exhibited by the investment goods sector are all causes for concern.&rdquo;<br /><br />Although initially disappointing, economists said that the breakdown of the PMI was cause for some optimism.<br /><br />The output balance rose to 55.1 from 54.5 and new export orders grew for the first time in over a year.<br /><br />Capital Economics&rsquo; Vicky Redwood said that the output expectations balance is just about consistent with positive annual growth of manufacturing output.<br /><br />&ldquo;This optimism may not last if the drop-back in new orders seen in August (from 54.8 to 52.4) continues,&rdquo; she said.<br /><br />Across the Channel, the Eurozone manufacturing PMI saw an upward revision from the early estimate to a 14-month high of 48.2 from 46.3 in July.<br /><br />The increase in new orders in August was the first since March 2008 and the intermediate goods sector continued to lead the recoveries in output and new orders in Eurozone manufacturing.<br /><br />Having been amongst the weakest performers during the height of the recession, France and Germany recorded the fastest rates of increase during August.<br /><br />In the US, the ISM manufacturing survey rose sharply to 52.9 from 48.9, consistent with third quarter GDP growth of about three per cent.