Manufacturers facing pressure from falling sales and rising raw material costs have been cutting jobs at the fastest rate for two years, it emerged today.
The squeeze on the workforce came as firms continued to report lacklustre levels of activity, albeit at a stronger rate than the past four months.
The Chartered Institute of Purchasing & Supply (CIPS) said it found employment in the manufacturing sector fell at the sharpest rate since May 2003, as companies carried out another round of cost-cutting and redundancy programmes.
It said margins remained under pressure because firms managed to only pass on a fraction of the rise in energy and other raw material costs.
The closely-watched Purchasing Managers Index did offer some encouragement, however, as CIPS said its overall activity figure of 50.1 in August was up from 49.5 in July and above City forecasts.
A figure above 50 represents expansion for the sector, which has fallen into recession after official data showed two successive quarters of contraction.
CIPS said production also expanded at the fastest rate since March as firms upped output for the launch of new product lines, particularly consumer goods.
Economists said the headline figure for August provided limited respite as high oil prices were set to continue to act as a brake on activity.
Gavin Redknap, an economist at Standard Chartered bank, said: “Today’s number will be cheering news for the Bank of England.
“However, with sterling rising lately and the impact of the most recent rise in crude prices yet to feed through, the improvement is more likely to be a temporary phenomenon rather than the start of a long-term improvement.”
CIPS said firms achieved a slight rise in factory gate prices for the first time in four months, but this was necessary to pass on some of the hike in raw material costs, rather than an improvement in their pricing power.
Roy Ayliffe, director of professional practice at CIPS, said: “General operating conditions remained challenging against a backdrop of soaring input price inflation, with costs driven primarily by high oil prices.
“Employment also took a blow, as manufacturers reported redundancies and other cost-cutting measures to the workforce.”