The slowdown in manufacturing will add to the calls for a fall in base rates, especially if official output figures for August, published on Friday, confirm the weaker survey results.
Base rate hopes were also raised by separate Bank of England figures showing growth of the narrow money supply measure, M0, slowed last month. However, it remained well above the 0-4 per cent monitoring range. In the latest monetary minutes, Kenneth Clarke, Chancellor of the Exchequer, and Eddie George, Governor of the Bank of England, drew attention to the dangers of a rapid increase in money supply.
City economists said a reduction in base rates was unlikely while monetary growth stayed uncomfortably high. The Budget is likely to be even more important. '' If there is no tax give-away in the Budget there will be a lot of pressure for interest-rate cuts,'' said Simon Briscoe, UK economist at Nikko Securities.
The purchasing managers' index dipped to 50.5 last month, from 52.1 in August, indicating barely any expansion in manufacturing. Peter Thomson, director-general of the Chartered Institute of Purchasing and Supply (CIPS), said: ''This is clear evidence that manufacturing activity continues to slow.'' The main reason for the fall was a drop in new orders, due partly to weak home demand and lower export orders than earlier in the year.
The output index, a separate component of the overall purchasing managers' index, rose slightly. Stocks of finished goods fell. The CIPS said many companies were meeting demand by running down stocks rather than increasing production.
The prices firms paid for materials rose last month, but the increase was the smallest for 18 months. The prices index fell from 62.9 to 57.6.
Purchasing managers cited sterling's recent stability and the easing of shortages of some materials - especially plastics and paper - as the explanation.
M0 rose 0.5 per cent last month, taking its year-on-year rate of growth down from 6.1 to 5.4 per cent. Growth in cash in circulation, the biggest component of M0, slowed to 5.7 per cent.
On the other hand, the annual growth rate in M0 during the past three months, taken as the best indicator of short-term trends, has accelerated to 7.5 per cent. ''The authorities are unlikely to cut interest rates against a monetary background that suggests the economy is bubbling under,'' said Kevin Darlington, UK economist at the broker Hoare Govett.Reuse content