Manufacturing sector activity in further fall

Group Business Editor

Tuesday 4 September 2012

THE UK manufacturing sector suffered another fall in activity in August, a key survey has revealed, fuelling worries about the wider economy's ability to mount a meaningful recovery.

FEARS: The manufacturing survey will lead to new concern over the potential for overall economic recovery. Picture: Getty

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Ian McConnell Business Editor

The Chartered Institute of Purchasing and Supply's purchasing managers' index for UK manufacturing, a composite indicator of activity which includes output, new orders, employment, suppliers' delivery times and stocks of goods purchased, rose from 45.2 in July to 49.5 in August on a seasonally-adjusted basis.

However, it was below the 50 mark which separates expansion from contraction for a fourth consecutive month.Although the index which measures output rose from 43.3 in July to 48.7 in August, it also continued to signal contraction, albeit at a slower pace. The drop in manufacturing output indicated by CIPS's July survey had been the sharpest monthly fall for more than three years.The new orders index rose, but also remained below the 50 mark. New export orders fell again in August, though also at a slower pace than in July. The employment index dipped from 50.5 in July to 50.4 in August, signalling only very marginal net recruitment by UK manufacturing.CIPS's survey, which is conducted by financial information company Markit, underlines the troubles of UK manufacturing at a time when demand in the domestic market and in key overseas territories, notably in mainland Europe, is weak.An industry survey out last week showed Scottish engineering companies suffered an overall fall in orders in the latest three months, while output growth slowed to a crawl after nine straight quarters of solid expansion. The quarterly Scottish Engineering survey had for a long time been more robust than many other indicators of UK manufacturing activity.Rob Dobson, senior economist at Markit and author of CIPS's manufacturing survey, 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. However, having followed such marked declines in July, the August readings for production and new orders do little to change the underlying picture of a fragile sector facing enormous headwinds. "Overall demand remains too lacklustre to provide an imminent and sustained recovery, with investment spending still weak and domestic austerity ongoing."Touching on the continuing eurozone economic troubles, he added: "Long unsatisfied hopes that the manufacturing sector could export its way back to health also remained jilted by the marrying of a downturn in our largest export market to the onset of softer global economic growth. "The performance of the sector is likely to remain subdued and volatile until underlying structural imbalances are resolved."Samuel Tombs, UK economist at consultancy Capital Economics, said: "While the activity balances of (the) CIPS/Markit report on manufacturing recovered from July's extremely weak levels, they remained consistent with ongoing recession in the industrial sector."He declared CIPS's manufacturing output index was "on the basis of past form ... still consistent with sharp falls in the official measure of manufacturing output of around 1% a quarter".Citing the Confederation of British Industry's survey of the sector, which showed late last month that UK manufacturers had suffered a significant deterioration in their order books with export and domestic business hit, Mr Tombs added: "The survey evidence suggests the underlying trend in manufacturing output remains down. "Accordingly, it seems unlikely that the sector will provide any support to the overall economy in the second half of the year."The UK has already tumbled into double-dip recession. UK output fell by 0.4% in the final three months of last year, 0.3% in the first quarter of 2012, and 0.5% in the three months to June.

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Manufacturing sector activity in further fall

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