Official figures show that UK manufacturing activity shrank at its fastest pace in more than two years in August, hurt by a sharp drop in demand for exports. The data are seen as a further sign that the country's economic recovery is stalling.
The Markit/CIPS manufacturing PMI index fell to 49 in August from an upwardly revised 49.4 in July. Though the August figure was slightly better than expected, it was the weakest since June 2009 and the second straight month below 50. Any figure below 50 means activity fell. Manufacturing output shrank for the first time since May 2009.
"The second half of 2011 has so far seen the UK manufacturing sector, once the pivotal cog in the economic recovery, switch into reverse gear," said Markit senior economist Rob Dobson.
The report is likely to support expectations that the Bank of England will leave interest rates at their record low of 0.5% next week and may even ignite speculation that the bank will consider injecting more stimulus into the economy.
Signs that price pressures are continuing to ease should also reassure rate-setters that inflation is heading down. The PMI survey showed input prices rose at their slowest pace in almost two years, while factory gate inflation was its lowest since last November.
Britain's economy grew by just 0.2% from April to June and most analysts reckon growth will remain muted for many more months to come.
Despite accounting for only 13% of total economic output, the manufacturing sector has been a major force in driving Britain out of recession from the end of 2009, boosted by stock building, a weak sterling and solid export demand.
But the PMI survey showed worsening global economic conditions have hurt demand for British goods. The new export orders index fell more than seven points to 46.6, the first contraction in almost a year and the fastest decline since May 2009. The report showed domestic demand is also flagging with new orders falling for the fourth consecutive month.
There was also bad news for jobseekers, as firms cut staff numbers for the first time in almost one and a half years.
