Manufacturing sector rebound hopes dashed

Hopes of an imminent rebound in the manufacturing sector were dashed today as the crisis in the UK's largest export market continued to hit orders.

The latest Markit/CIPS purchasing managers' index (PMI) produced a headline reading of 48.4 for September, below the 50 mark that separates expansion from contraction and down on the improved trend of 49.6 seen a month earlier.

After an initial rebound since activity was hit by the extra holiday for the Queen's Diamond Jubilee in June, Markit economist Chris Williamson said the findings were consistent with manufacturing output falling at a quarterly rate of more than 1% in September.

He said: "At that pace, the sector could dampen economic growth severely and keep the economy in recession."

A bright spot in the survey was an uplift in growth of new orders to the highest level since March, helped by an improvement in domestic demand.

But the overall increase was only modest due to falling exports as overseas sales continue to be hit by the ongoing deterioration in global economic growth, driven by the ongoing crisis in the eurozone.

Mr Williamson added: "In this global economic environment, manufacturers look certain to struggle and the sector is unlikely to act as a driver of economic growth."

Cost pressures also surged in September, reflecting rising oil and agricultural commodity prices in particular.

The CIPS survey said staffing levels fell for the fifth successive month, with companies blaming the steepest rate of reduction since November on tough market conditions, lower production and the presence of spare capacity.

Backlogs of work fell for the 20th month in a row, the survey added.

Samuel Tombs, an economist at Capital Economics, said the sharp fall in the employment balance, indicating that manufacturers have picked up the pace of job-cutting, was "a tentative sign that the resilience of employment in the first half of the year might be starting to fade".

He added: "Today's economic data presented a uniformly weak picture of economic activity and will therefore go some way to dampening hopes that the 'green shoots' of recovery are emerging."

PA