Double-dip fears grow after fall in manufacturing


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"Stagnant" British manufacturing has edged further towards renewed recession with the latest and most authoritative survey of business sentiment in the sector suggesting that output may contract in the coming months. It comes as the official data showed manufacturing output contracted in the second quarter of this year, partly due to disruption to Japanese component supply after the tsunami, but also because of an underlying weakness in demand, especially domestically. Broadly, the economy has been flat for the past nine months.

The Chartered Institute for Purchasing and Supply (CIPS) saw its overall reading of sentiment, the Purchasing Managers' Index, slip to 49.1 in July, down from a revised figure of 51.4 in June. The PMI is a reliable leading indicator, and any reading below 50 points to falling activity in about six to nine months.

The news will add to the pressure on the Bank of England's MonetaryPolicy Committee, which meets this week, to launch another round of "quantitative easing", the direct injection of money into the economy.

Attention at the Committee and elsewhere will focus on the CIPS' sentiment reading for the services sector – which comprises some 70 per cent of national income, against around 12 per cent in manufacturing.

A severe slump in sentiment there, if coupled with the other subdued indicators, might just impel the Committee to act.

However, the consensus in the City is that those figures will still be in positive territory and that the Bank will leave rates at the historic low of 0.5 per cent and put QE on hold.

David Noble, chief executive at the CIPS, said: "Alarm bells are ringing for the UK manufacturing sector, which has seen conditions deteriorate rapidly since the start of the year."