UK manufacturing at nine-month low

Worries over the fragile recovery among UK manufacturers intensified today after growth slowed to a nine-month low in August.

The Chartered Institute of Purchasing and Supply’s (CIPS) activity index, where a reading over 50 indicates growth, slipped to 54.3 last month – the lowest since last November.

CIPS chief executive David Noble said nerves over the potential impact of deficit-busting measures was hampering sales growth.

“The looming public sector spending cuts are keeping UK manufacturers on tenterhooks and slowing the pace of recovery,” he warned.

The slowdown in activity was bigger than feared by the market, falling from a reading of 56.9 in July.

Firms saw a “modest” rise in export orders, but the growth was well below the record highs seen earlier this year and support from overseas is “fizzling out”, according to Markit senior economist Rob Dobson.

The closely-watched measure of new orders as a proportion of stockpiles also fell to a 17-month low – suggesting further slowdown in production ahead.

Consumer goods manufacturers bore the brunt of the slide, offsetting higher demand for capital goods, such as plant and machinery.

Employment rose for the fifth month in a row, but firms are still facing cost pressures due to rising raw materials prices.

According to official figures, manufacturing output grew by 1.6% in the second quarter of 2010 as the economy advanced at the fastest rate since 2001.

But Capital Economics’ chief European economist Jonathan Loynes said today’s CIPS survey showed the recovery among manufacturers was “losing momentum”.

“There is further support here for the view that the rapid growth in the economy seen in the second quarter – to which industry made a strong contribution – will not be sustained in the coming quarters,” he added.

The pound fell almost a cent against the dollar on the news, as markets bet that interest rates would be held lower for longer to shore up the recovery.

Sterling is now trading at its lowest levels for more than a month.

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