UK manufacturing activity slumps

City A.M. Reporter
British manufacturing activity shrank at its fastest pace in three years in May as a broad-based global economic slowdown hit demand for British goods,

The latest Markit/CIPS Manufacturing Purchasing Managers' Index suggests the sector continued to drag on the economy which is mired in its second recession in two years, and may add to expectations the Bank of England will need to act to ward off the threat of a protracted euro zone-led downturn.

The figures are also likely to add to growing calls for Britain's Conservative-led coalition government to find new ways to boost growth as it presses ahead with austerity plans.

The headline PMI activity plunged to 45.9 in May from a downwardly revised 50.2 in April, its lowest reading since May 2009 and the second-steepest fall in the survey's 20-year history.

Analysts had expected a more modest dip below the 50-point mark that separates contraction from expansion, to 49.8.

Markit said the sharp decline in activity reflected the first contraction in manufacturing output in six months and the steepest decline in new orders since March 2009.

“The drop is not simply linked to the ongoing crisis of the euro zone, but to increasing weakness of the UK domestic market," said Markit economist Rob Dobson.

“Manufacturers are also struggling to replace orders from Europe with demand from elsewhere, with reports of slower new work inflows from the United States and Asia."

In a further sign of the darkening economic outlook, earlier on Friday the British Chambers of Commerce cut its 2012 GDP growth forecast to 0.1 per cent from 0.6 percent.

Over a third of companies surveyed by Markit reported lower new orders in May, with that index falling by seven points to 42.0 - its lowest since Britain was in recession in the immediate aftermath of the 2008 financial crisis.

The decline reflected a sharp weakening in domestic orders, though export orders were also subdued, falling for a second month running in May.