Threat of public spending cuts slows manufacturing growth

1 September 2010

1 September 2010 | Lindsay Clark

UK manufacturing is growing at its slowest rate in nine months, according to the latest Purchasing Managers’ Index (PMI).

Although the sector continued to expand last month, the Markit/CIPS survey of purchasing managers in the sector registered 54.3 in August, down from 56.9 in July. A score of 50 indicates no change.

David Noble, chief executive at the Chartered Institute of Purchasing & Supply, said the PMI result suggested that the prospect of severe public spending cuts was hanging over the manufacturing sector.

“While the volume of work continues to expand, businesses are taking a more cautious approach to new orders, with growth of order books slowing sharply in August,” he said. “The government spending review in October should bring more clarity to the situation.”

Rob Dobson, senior economist at Markit and author of the UK Manufacturing PMI, said there were signs that expansion would continue to reduce in pace. “The forward-looking orders-to-inventory ratio is also pointing to further slowing in the UK in coming months and, following a surge earlier in the year, the hoped-for support from exports has been fizzling out in recent months.”

However, Dobson said that although growth was slowing, there was little suggestion the manufacturing sector would slip back into recession. “Most indicators are still consistent with growth continuing and further job creation was recorded. Although the intermediate and consumer sectors are cooling, the capital goods sector accelerated, which suggests that investment spending is still supporting growth."

Meanwhile, there was some good news for buyers in the August manufacturing PMI. It found purchase price inflation eased to a seven-month low, after peaking in May this year.

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