Manufacturers cut jobs as sector shrinks for second month in a row

Activity across the Britain's factories declined as companies scaled back production

There was further confirmation of the darkening economic picture yesterday after new figures showed that the manufacturing sector had contracted for its second consecutive month in November, with output declining at its sharpest pace in more than two and a half years.

Activity across the UK's factories declined as companies scaled back production in response to lower demand both from within and outside the country, with the eurozone debt crisis hitting trends. Jobs were also cut, with employment in the sector declining at its fastest rate in more than two years.

The weakness was apparent in the survey of manufacturing purchasing managers' from the data provider Markit and the Chartered Institute of Purchasing and Supply (Cips). It showed that the key purchasing managers' index (PMI) stood at 47.6 last month, down from an upwardly revised figure of 47.8 in October to its lowest level since June 2009. A reading below 50 indicates that the sector is shrinking.

Amid the gloom, there was some relief among economists who had expected weaker than reported trends. That, however, did not mask the grim auguries for the sector, which helped pull the UK out of recession, and the broader economy. Earlier this week, the Organisation for Co-operation and Development warned that the UK was on the bring of a modest recession, while the Office for Budget Responsibility lowered its growth estimate for next year to just 0.7 per cent.

"Export orders, which UK manufacturers are increasingly dependent on, continue to decline as the eurozone crisis impacts demand in UK and Asia as well as Europe," the Cips chief executive, David Noble, said.

"Worryingly, employees are already being affected by the downturn... With new orders and outstanding business falling, it seems likely there will be more job losses to come next year."

Along with staff, factories also cut back on purchasing and stock holdings. The reductions came as incoming new orders fell for the fifth month running in November, even though the rate of decline eased from the record pace seen back in October. New export orders fell amid reduced demand form mainland Europe, the US and Asia, the report showed.

Falling orders meant that the backlogs were lower. "The manufacturing engine has run out of steam," Rob Dobson, senior economist at Markit and the author of the report, said, adding that, as new orders fall, manufactures are relying on previous commissions to avoid cuts in output and jobs. "This cannot go on indefinitely," he warned.

The revelation that average input costs had declined for the first time since July 2009 was positive, however, with economists pointing out that this would help reinforce the Bank of England's view that consumer price inflation will fall back sharply next year.

But decline in activity led to renewed predictions that the Bank was likely announce another round of quantitative easing to support the flagging economy in the new year.