UK manufacturing activity at two-year low

Manufacturing activity shrank at its fastest pace in over two years in August, hurt by a sharp drop in demand for exports, data showed on Thursday, in a further sign that the economic recovery is stalling.

The Markit/CIPS manufacturing PMI headline activity index fell to 49.0 in August from an upwardly revised 49.4 in July.

That was the weakest level since June 2009 and the second straight month below the 50 line separating contraction from expansion, though it was slightly better than forecasts for a reading of 48.6.

Manufacturing output contracted for the first time since May 2009.

"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," said Markit senior economist Rob Dobson.

The report is likely to support expectations that the Bank of England will leave interest rates at their record low of 0.5 percent next week and may even ignite speculation the central bank will consider injecting more stimulus into the economy.

BoE dove Adam Posen this week called for central banks of all advanced economies to buy more financial assets to support growth, after the US Federal Reserve hinted it may consider a further cash injection.

And signs that price pressures are continuing to ease should also reassure rate-setters that inflation is heading down. The PMI survey showed input prices rose at their slowest pace in almost two years, while factory gate inflation was its lowest since last November.

"This provides support to the Bank of England's belief that inflationary pressures are temporary and offer room for manoeuvre if any further stimulus is required," said Dobson.