Manufacturing sector records fastest fall in almost two years

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Manufacturing activity in the UK fell last month at its fastest rate in almost two years. However, economists said the disclosure was unlikely to persuade the Bank of England to make a further cut in interest rates when its Monetary Policy Committee meets this week.

The Chartered Institute of Purchasing and Supply (CIPS) said its manufacturing index fell from 46.5 in October to 45.6 last month, its lowest level since January 1999 and against expectations of no change. A figure below 50 indicates falling activity year-on-year. The index has not registered a rise for nine months.

Job losses in manufacturing have accelerated since 11 September, with the likes of ICI, Rolls-Royce and Invensys unveiling thousands of redundancies. Last week BAE Systems announced the closure of its regional jet business with the loss of some 1,700 positions.

John Butler, UK economist at HSBC, said the CIPS survey was no more downbeat than existing government data. "The basic message is that the outlook for manufacturing remains poor. Given the inaccuracy of the survey it is unlikely to have much influence on the [Bank of England] this week. We expect no change in rates," he said.

While the survey showed activity falling in investment goods and intermediate goods, which are used in the manufacturing process, production of consumer goods registered a rise.

Separately, there was fresh evidence of the continued strength of high street spending in comments from the British Retail Consortium that strong demand for electrical and large household items had helped underlying retail sales rise 5.8 per cent in November, albeit slightly slower than October's 6.0 per cent. Sales of toys and festive merchandise were "slightly disappointing".

On a three-month view, the rate of sales growth is still rising, up from 5.8 per cent to 5.9 per cent in like-for-like terms. The BRC also noted November last year saw aggressive promotional activity. "All sectors have shown stabilisation this month and retailers remain cautious about how long this growth in sales can be maintained as more bad news comes out of other sectors and other economies," said Bridget Rosewell, the BRC's chief economic adviser.

In the US, there were signs of a bottoming in the downturn in the manufacturing sector. The National Association of Purchasing Management said its index rose to 44.5 from October's 10-year-low of 39.8, against expectations of 41.7. A figure below 50 shows a contraction. "The trend is definitely in the right direction, but it is too soon to claim an imminent recovery," the NAPM said, adding that the sector could return to growth in the second quarter of next year.

Separate figures registered the largest-ever monthly increase in US consumer spending, with October spending rising 2.9 per cent, as Americans took advantage of zero per cent financing offers from car makers.