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Slowdown in manufacturing growth sparks fears over recovery

Growth in manufacturing output in the UK slowed to 0.1% in September, fuelling fears today over the pace of the sector's recovery.

While activity rose for a fifth straight month, it was the weakest month-on-month rate since April, according to the Office for National Statistics (ONS). The year-on-year increase slowed to 4.8% in September from a near 16-year high of 6.1% in August.

The wider measure of industrial production, which includes manufacturing, mining and quarrying, grew 0.4% on the month and 3.8% on the year.

Other surveys in recent weeks have offered some hope that the industrial sector will continue to support the overall economy. The Chartered Institute of Purchasing and Supply's (CIPS) activity index, where a reading over 50 indicates growth, rose to 54.9 in October.

Manufacturers have benefited this year from healthier demand at home and overseas, improved competitiveness stemming from the weaker pound and customers replacing stockpiles used up in the recession. But economists said today's figures raised a question mark over whether the sector could support the recovery as the economy feels the bite of the Government's belt-tightening cuts.

Vicky Redwood, senior UK economist at Capital Economics, said: "The latest UK data suggests that the industrial recovery, while still fairly healthy, has lost some pace.

"It is hard to be particularly optimistic about the outlook for industry when there is still little boost to exports from the lower pound."

She added: "We still doubt that the industrial sector on its own can compensate for the effects of the fiscal squeeze on the rest of the economy."

The ONS said output fell in six of the 13 manufacturing sub-sectors compared to August. The main sub-sectors were electrical and optical equipment, and paper, printing and publishing. The stronger performing sub-sectors were chemical and man-made fibres, basic metals and metal products and food, drink and tobacco.

Howard Archer, chief European and UK economist at IHS Global Insight, said the slowdown in the overall rate of manufacturing output "fuels suspicion" that the sector will come under increasing pressure. He said a winding down of stock-rebuilding, tighter fiscal policy and slower global growth hitting foreign demand for UK products would all impact on the recovery.

Other ONS data showed the UK trade deficit - that is when imports exceed exports - narrowed slightly in September. The UK's seasonally adjusted deficit on trade in goods and services was £4.6 billion in September, compared with £4.9 billion in August.

David Kern, chief economist at the British Chambers of Commerce (BCC), said longer-term comparisons still confirmed the re-balancing of the economy was on course.

He said: "Manufacturing has now risen faster than services for four quarters in a row, and the rise in exports was stronger than imports in the third quarter." 

But he warned forthcoming cuts will put demand under serious pressure, adding: "The Government must make sure that our exporters receive all the necessary support, and are not placed at a competitive disadvantage in key areas such as short-term trade finance."

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