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Manufacturing decline worsens as orders drop

THE UK manufacturing sector's troubles deepened in October, as output and new orders tumbled and employee lay-offs continued, a key survey reveals.

The Chartered Institute of Purchasing and Supply's (CIPS's) grim manufacturing survey highlights the dangers of a renewed fall in overall UK economic activity as early as the current quarter.

UK gross domestic product jumped by 1% quarter-on-quarter in the three months to September, according to figures published by the Office for National Statistics last week.

However, this rise followed three consecutive quarters of contraction. And part of the bounce in GDP in the third quarter reflected the downward impact of the extra public holiday for the Queen's Diamond Jubilee on economic activity in the three months to June. Third-quarter GDP also benefited from activity associated with the London 2012 Olympics.

The CIPS's purchasing managers' index for manufacturing, a composite measure of activity in the sector which includes output, new orders, employment, suppliers' delivery times, and stocks of goods purchased, dropped from 48.1 in September to 47.5 in October on a seasonally adjusted basis.

It has been below the level of 50, which is calculated by CIPS to separate expansion from contraction, since the spring.

The drop in the manufacturing PMI in October signals an accelerating rate of decline. The output index, meanwhile, tumbled from 47.3 to 45.8, signalling a significantly faster pace of decline of manufacturing production.

Vicky Redwood, chief UK economist at consultancy Capital Economics, calculated that CIPS's October output index reading was consistent with manufacturing output falling at a quarterly rate of more than 1.5%.

Data from the Office for National Statistics painted a much more upbeat picture of UK manufacturing output in the three months to September than CIPS' surveys, showing a 1% quarter-on-quarter rise.

However, this followed a 0.8% drop in UK manufacturing output on the official measure in the second quarter.

Ms Redwood said: "The deterioration in October's CIPS/Markit report on manufacturing provided more evidence that the industrial sector is struggling and suggested that the rebound in the official measure of manufacturing output in the third quarter was only temporary."

The pace of decline of manufacturers' total new orders and export orders also accelerated in October, with some reports from firms of a reduction in new work received from clients in Asia as well as weaker demand from mainland Europe.

Rob Dobson, senior economist at CIPS's survey compiler and financial information company Markit, said: "While the road to an export-led recovery is still blocked by the ongoing difficulties in the eurozone, it is concerning to hear further reports of the global slowdown hurting trade with other regions such as Asia."

Pernod Ricard last week revealed it had experienced a slowdown in demand for Scotch whisky from Asia in its last financial quarter.

CIPS's survey of UK services sector activity in October, due to be published on Monday, will be crucial in providing an early indication of the likely direction of GDP in the fourth quarter.

The latest manufacturing survey from CIPS comes hard on the heels of grim reports on the sector from the Confederation of British Industry.

Scotland's manufacturing sector suffered a plunge in new orders and output in the latest three months, and was hit by renewed shedding of staff, according to a survey published by the Confederation of British Industry last week.

The CBI Scotland survey highlighted the weakness of the UK economy, with the plunge in Scottish manufacturers' overall new orders resulting from a tumble in domestic business.

One of the few bright spots in CIPS's UK manufacturing survey was a rebound in output in the consumer goods sub-sector in October.

This contrasted with falls in output in the intermediate goods and investment goods sub-sectors of manufacturing.

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