Surprise fall in UK manufacturing activity

Fears were raised today over the strength of the UK's economic recovery after figures showed a surprise fall in manufacturing activity last month.

The Chartered Institute of Purchasing & Supply's (CIPS) headline measure of the sector posted 49.7 in August, below the no-change mark of 50 and well down on the City's forecast for a figure of near to 52.

The purchasing managers' survey showed growth for the first time since April last year during July, but CIPS downgraded this figure today to 50.2 from the 50.8 previously reported.

CIPS said new orders rose at a slower pace in August, although manufacturing output grew at the fastest pace since December 2007.

Chief executive David Noble said: "The future picture for the UK manufacturing sector is still uncertain, and concerns will remain that the improvements seen in recent months may have been temporary rather than a sustainable recovery."

The weaker-than-expected figures were seen as one of the factors behind a sharp sell-off in the FTSE 100 Index, which stood one per cent lower today.

Colin Ellis, European economist at Daiwa Securities, said the research offered a mixed picture, given a further rise in the output index.

He said: "All told, today's numbers are a reminder that the economy is nowhere near out of the woods yet."

The headline figure provides an indication of operating conditions in the manufacturing sector and is calculated using data collected on new orders, production, employment, supplier performance and stocks of purchases.

The report said manufacturers continued to focus their efforts towards trimming costs and excess capacity.

Job losses were recorded for the 16th month in a row in August, although the rate of decline in employment was the slowest since June last year. Larger-sized companies tended to cut employment at a faster pace than smaller firms, CIPS added.

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