UK manufacturing sector: activity contracts at slower rate

3 September 2012

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3 September 2012 | Anna Reynolds

Manufacturing production fell for the second successive month in August, with the Market/CIPS UK Manufacturing PMI reporting a figure of 49.5.

The figure below the no-change mark of 50 shows activity contracted, but at a slower rate than in July, when it was 45.2. The ease in the reduction rate was attributed to lower input prices.

Decline in output centred on the investment goods sector, while output rose solidly at consumer goods producers. Intermediate goods companies saw a marginal return to growth.

The main reason behind the drop in production during recent months has been weak market conditions. Although August saw an influx of new work, it followed four consecutive months of contraction.

Manufacturing employment rose slightly for the second successive month. Strong competition and weak demand restricted the pricing power of a number of firms, with purchasing activity scaled-back as a result of lower demand for raw materials. However, improved lead times reflected successful negotiations with suppliers.

The broad stagnation of new orders was still an improvement on the severe decline seen in July, as companies reported a modest increase in new work from domestic clients. The rate of decline in new export orders also eased, despite weak demand from Europe.

Rob Dobson, senior economist at Markit, said: “The marked easing in the rate of contraction at UK manufacturers is heartening, if only because last month’s steep pace of decline wasn’t repeated. Overall demand remains too lacklustre to provide an imminent and sustained recovery, with investment spending still weak and domestic austerity ongoing.”

CIPS CEO David Noble said: “Inevitably, this picture continues to influence new export orders negatively, although the rate of this contraction eased significantly. At the same time, domestic new orders have rallied, offering respite to the sector, which looks set for a long, flat recovery.”

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