Manufacturing activity has raised the risk of the economy faltering

Manufacturing downturn deepens again in September

Activity in the manufacturing sector shrank more than expected in September as export orders fell and costs soared.

The CIPS/Markit Purchasing Managers' Index (PMI) for the manufacturing sector fell to 48.4 from an upwardly revised 49.6 in August, dipping further below the 50 mark which separates growth from contraction.

The latest signs of renewed weakness in manufacturing will support the view that the recovery is fragile and that the Bank of England will extend its quantitative easing asset purchases once the current round is completed in November.

Manufacturers cut production for the third month in a row, with all major sectors seeing a contraction, survey compiler Markit said.

Markit economist Chris Williamson said the findings were consistent with manufacturing output falling at a quarterly rate of more than 1 per cent in September.

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

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.

"Overseas sales continue to be hit by the ongoing deterioration in global economic growth, with the eurozone – the UK's largest export market – at the epicentre of the weakness," Williamson said.

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

Britain's economy has been moving out of recession over the past few months as manufacturing and services output rebounded strongly from the effect of an extra public holiday in June to celebrate Queen Elizabeth's 60 years on the throne.

Manufacturing production jumped 3.2 per cent in July, posting the sharpest monthly rise in 10 years.

Markit said manufacturers recorded a small increase in new business on the back of stronger demand for consumer goods, and the new orders index rose to 50.6 from 50.2 in August.

But new export orders declined for the sixth straight month in September, with manufacturers reporting weaker demand from the European Union and Asia, Markit said.

Surveys for the manufacturing sector in the eurozone had also shown an acceleration in the downturn in September.

British manufacturers' costs surged this month at the fastest pace in six months, as firms had to pay more for chemicals, energy, food, oil and metals, Markit said.

However, companies were barely able to raise their own prices. The index for prices charged fell to its lowest in eight months.

While this puts pressure on profit margins, it dampens the risk of another pick-up in consumer price inflation in Britain.

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