New figures reveal shock fall in manufacturing

The UK manufacturing sector took a sudden and sharp turn for the worse today after new figures revealed a shock contraction in production.

The latest Markit/CIPS survey, where a reading above 50 represents growth, fell to 45.9 in May from 50.2 the previous month, well below City hopes for a figure just below 50.

It is the second-steepest fall in the survey's 20-year history and came as new orders dropped at the fastest pace since March 2009.

Markit said the collapse reflected not just the crisis in the eurozone but the increasing weakness of the UK domestic market, with overall order books shrinking at a faster rate than export orders.

It found that manufacturers were struggling to replace orders from Europe with work elsewhere, such as the US and Asia.

Barring a sharp turnaround this month, manufacturing output could fall by as much as 1% in the second quarter, dashing hopes that the UK will make a quick exit from recession.

CIPS chief executive David Noble said: "The harsh realities of the weak global economy and sluggish domestic demand are bearing down on UK manufacturing.

"This may prove to be a blip, but there is a long way to go before the manufacturing sector recovers fully from the global financial crisis. The sector could well become a drag on the UK economy as it seeks a return to better health."

Job losses were reported for the first time in five months during May, while CIPS also highlighted the increasing non-replacement of leavers.

The only bright spot for economy-watchers came from an easing in inflationary pressures, with the rates of increase in input costs and selling prices both slowing over the month.

Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club, said today's figures were desperately disappointing, with worrying echoes of the collapse in activity in 2008.

He added: "The recent trend had been one of a gradual slowdown in activity, but today's figures show that the problems are on another level altogether.

"Clearly the escalation of the eurozone crisis is having a very damaging effect on confidence, not just in the eurozone itself but also in the UK."

CIPS said the decline in output may have been sharper had it not been for a marked reduction in backlogs in work, as companies diverted spare capacity towards completing existing contracts.

More than a third of surveyed companies reported a decline in incoming new orders during May, with some doing so in anticipation of price reductions in the coming months.

PA