Manufacturing conditions in UK ‘deteriorated further’ in August

Business conditions in the UK manufacturing sector deteriorated further in August, according to the latest seasonally adjusted Markit/CIPS UK Manufacturing Purchasing Managers’ Index (PMI).

Production fell for the first time since May 2009, as new order inflows declined at the most marked pace in almost two-and-a-half years. The trend in new export business was also substantially weaker than one month ago.

At 49.0 in August, from a revised reading of 49.4 in July, the PMI posted its lowest reading for 26 months.

Lower production was recorded in the intermediate and investment goods sectors. Consumer goods output rose at the strongest pace for five months.

The volume of new orders to the overall sector declined for the fourth month running in August, with the rate of contraction accelerating to the sharpest since April 2009.

The trend in new export orders deteriorated sharply in August and employment fell for the first time in 17 months.

Rob Dobson, senior economist at Markit and author of the Markit/CIPS Manufacturing PMI, said: ‘The second half of 2011 has so far seen the UK manufacturing sector, once the pivotal cog in the economic recovery, switch into reverse gear.

‘August saw production fall for the first time since May 2009 on the back of the sharpest deterioration in new order inflows for two-and-a-half years. A slight drop in employment also suggests manufacturers are increasingly cautious in their outlook and seeking to cut costs where possible.

‘The sudden and substantial drop in new export orders is particularly worrisome, with UK manufacturers hit by rising global economic uncertainty, just as austerity measures are ramping up at home. 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.

‘On a brighter note, price pressures have eased substantially since the beginning of the year. This provides support to the Bank of England’s belief that inflationary pressures are temporary and offer room for manoeuvre if any further stimulus is required.’