British manufacturing shrank in July for the first time since the country was in recession two years ago, a survey showed, adding to signs the recovery is faltering and piling more pressure on the government to boost growth.
The figures confounded forecasts for a modest slowdown, reinforcing expectations the Bank of England will leave interest rates at their record low 0.5% for a long time to come, and rekindled speculation it may even have to inject more stimulus into the economy further down the line.
The Markit/CIPS manufacturing PMI headline activity index fell to 49.1 in July from a revised 51.4 in June - the first time it has been below the 50 mark that separates contraction from expansion since July 2009, and the weakest reading since June of that year. Analysts had expected a reading of 51.
The survey reinforced indications that Britain's fragile recovery is wilting, leaving the nation in the midst of its longest phase of economic weakness in almost a century.
Data last month showed the economy grew a meagre 0.2% between April and June, and the PMI numbers added to recent evidence the third quarter also got off to a poor start.
Britain's leading business lobby group, the CBI, earlier cut its growth forecast for this year to 1.3% from 1.7%.
The UK government has come under fire for its insistence to stick to tough public spending cuts at a time when household budgets are being squeezed by soaring inflation and weak pay growth, and the data adds to pressure on finance minister George Osborne to come up with a plan to boost private-sector growth to compensate for the public cuts.
A recent poll showed that almost two-thirds of voters were unhappy with the way the government is running the country.
The figures also reignited speculation the Bank of England may expand its £200 billion sterling quantitative easing programme, although analysts said that high inflation posed a major obstacle to any further injections of cash into the economy.
Despite accounting for only 13% of total economic output, manufacturing was a major force in driving Britain out of recession from the end of 2009, boosted by stockbuilding, a weak pound and solid export demand.
The PMI survey showed domestic demand fell sharply in July, resulting in the biggest contraction in new orders since May 2009, while firms cut their pace of output sharply in response.
The survey also showed that firms supplying the consumer sector were particularly hard hit, reflecting a squeeze on household budgets from years of below-inflation pay rises. And to cope with the drop in demand, manufacturers cut jobs for the first time since March 2010.
There was, however, a glimmer of good news. New export orders rose at their fastest clip in three months and companies' raw materials costs grew at their slowest pace since December 2009, allowing businesses to increase the prices they charge at the slowest pace in eight months.
