Manufacturing slump deepens in September

Group Business Editor

Tuesday 2 October 2012

THE downturn in UK manufacturing deepened in September, a key survey has revealed, casting further doubt on Chancellor George Osborne's vision of a "Britain carried aloft by the march of the makers".

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Ian McConnell BUSINESS EDITOR

The Chartered Institute of Purchasing and Supply's survey highlights the continuing underlying weakness of the UK economy, even though gross domestic product is expected by the City to have rebounded in the third quarter because of the downward impact of the Queen's Diamond Jubilee holiday on output for the three months to June.

CIPS' purchasing managers' index for manufacturing, a composite measure of activity which includes output, new orders, employment, suppliers' delivery times, and stocks of goods purchased, fell from 49.6 in August to 48.4 in September on a seasonally adjusted basis. The fall took it further below the level of 50 which separates expansion from contraction, signalling an acceleration of the rate of decline of manufacturing activity. The manufacturing PMI has been below 50 since the spring.CIPS' manufacturing output index dropped from 48.7 to 47.6, and has now been below 50 for three consecutive months.Overall new orders showed marginal growth. However, the rate of decline of export orders increased.And job-shedding by the UK manufacturing sector accelerated during September. The sector has, overall, laid off staff in every month since May, according to CIPS' seasonally adjusted employment index for manufacturing.CIPS' survey also showed a surge in manufacturers' input costs in September, signalling pressure on profit margins.Chris Williamson, chief economist at CIPS' survey compiler Markit, said: "The UK manufacturing sector has lost momentum again at the end of the third quarter, with firms suffering the double blow of falling output and rising costs."The survey data are consistent with manufacturing output falling sharply, at a quarterly rate in excess of 1% in September. At that pace, the sector could dampen economic growth severely and keep the economy in recession."He added: "Job losses are mounting again as a result. A steep rise in raw material costs does not help, linked to rising oil and agricultural commodity prices in particular, which manufacturers sought to offset by cutting labour costs via job losses."Howard Archer, chief UK economist at consultancy IHS Global Insight, said: "The September manufacturing purchasing managers' survey broke the recent trend of improved news on the UK economy, perhaps providing a dose of reality and highlighting that the economy still faces a tough job in developing sustained growth, despite a likely appreciable rebound in GDP in the third quarter after economic activity was held down in the second quarter by fewer working days and very wet weather."Figures published yesterday by the Bank of England showed that UK mortgage approvals for house purchase remained weak in August.They rose only slightly, to 47,665 in August from 47,556 in July. The approvals number for August was down about 10% on the same month of 2011.Samuel Tombs, UK economist at consultancy Capital Economics, said of CIPS' manufacturing survey and the mortgage approval numbers: "[The] data presented a uniformly weak picture of economic activity and will therefore go some way to dampening hopes that the 'green shoots' of recovery are emerging."He declared that CIPS' survey "suggests that underlying conditions in the industrial sector are still extremely weak".Mr Tombs added: "Meanwhile, the number of mortgages approved for house purchase increased by just 100 or so to 47,665 in August – a much smaller rise than had looked likely given timelier data from the British Bankers' Association."

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Manufacturing slump deepens in September

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