UK manufacturing growth at ten-month low

 
City A.M. Reporter
Activity in the manufacturing sector weakened more than expected in September to grow at its slowest pace in ten months, as export orders fell for the first time in more than a year, a survey showed.

The Markit/Chartered Institute of Purchasing and Supply manufacturing PMI index fell to 53.4 in September from a downwardly revised 53.7 in August. That was the lowest since November 2009 and below forecasts for a reading of 53.8.

The figures are likely to reinforce concerns that Britain's recovery is losing steam after strong growth in the second quarter, and could lend weight to Bank of England policymaker Adam Posen's view the BoE should inject more stimulus.

Meanwhile, signs that price pressures are easing and that firms still have spare production capacity should provide reassurance the BoE can leave interest rates at their record low of 0.5 percent for longer without stoking inflation.

The PMI survey showed output fell back to grow at its slowest pace since last September and the employment index also fell to stand barely above the 50-level which separates expansion from contraction.

"More worrying is the order book trend," said Rob Dobson, senior economist at Markit. "This suggests that the slowdown in production has further to run."

The new orders index improved by almost two points, but the export orders index fell below 50 to show foreign demand declining for the first time since July 2009.

"This mainly reflected weaker foreign demand for UK consumer goods," the survey said, adding that respondents had reported a drop in demand from clients in mainland Europe, the United States and Russia.

Foreign demand for British goods has not been as strong as experts thought it would be even though sterling has lost around a quarter of its value against other currencies since 2007.

And the prospect of a pick-up in exports is looking increasingly uncertain as Britain's key trading partners face muted growth and fiscal austerity measures.

That, together with sharp cuts in government spending, mean the UK's surprisingly robust 1.2 per cent growth between April and June could turn out to be the peak for now.