Manufacturing decline worsens in August

1 September 2011

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1 September 2011 | Adam Leach

Activity in the UK manufacturing sector has fallen to a 26 month low, according to the Purchasing Managers’ Index (PMI) for August.

The Markit/CIPS PMI report for the sector reported a drop to 49 last month, indicating activity had shrunk. A figure below 50 indicates contraction. This is a fall from a revised figure of 49.4 in July, and is the lowest recorded since June 2009.

The report noted there was lower production of raw materials and plant and machinery and although production of consumer goods rose to a five month high, it was merely to replenish low stock levels rather than to service increased demand. New orders declined for a fourth consecutive month as manufacturers attributed weak performance to a lack of demand and overall economic uncertainty.

David Noble, CEO at CIPS, said: “Falling output signals a UK manufacturing sector in reverse-drive; much different to the dynamism of the early half of the year. The weakness of the UK consumer market looks like it is here for the long haul, despite a slight burst of activity in August as consumer goods manufacturers looked to rebuild their inventories from a low base.”

“The silver lining at this point is the continued easing of inflationary pressure which is helping many businesses to protect their margins and maintain their prices, despite input costs staying relatively high.”

Rob Dobson, senior economist at Markit, said the sudden drop in new foreign orders was worrying, as UK firms were hit by growing global concerns about the economy. “As consumer and business confidence are slumping both at home and abroad, it is hard to see where any near-term improvement in demand will spring from,” he said.

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