UK manufacturing stagnates as job cuts begin

01 October 2015

The UK manufacturing sector stagnated in September, with factories taking a hit from a triple blow of weak investment, sluggish export orders and slower consumer spending.

According to Markit's latest survey of the sector, domestic orders continued to drive growth while exporters continued to struggle.

"Job cuts send a signal that manufacturers are becoming more cautious about the future, which may lead to a further scaling back of production at some firms in coming months," said Rob Dobson, senior economist at Markit.

The Markit/CIPS manufacturing PMI came in at 51.5 in September, which was broadly unchanged from August's reading of 51.6. A number above 50 signified growth.

According to economists it was unlikely that manufacturing, which powered about 10 per cent of the UK economy, would contribute to growth in the third quarter. Official data on Wednesday showed manufacturing activity in recent years was weaker than previously thought.

"The industrial side of the economy is playing no role in the economic recovery at the moment. And looking ahead, the sector's near-term prospects do not look much better, as bleak weak overseas demand and a stronger exchange rate are likely to continue to crimp growth," said Ruth Miller, an economist at Capital Economics, The Telegraph reported.

Prices paid by manufacturers for raw materials and energy fell at the fastest rate in over 16 years, suggesting producer prices were not likely to pick up soon.

The survey's jobs index fell below the 50 mark for the first time since April 2013, adding to signs that a phase of strong employment growth in the UK had flattened out.

The survey's measures of output and exports had something to cheer. New export orders were up though only slightly - for the first time in six months, even as growth in output was up to its highest level since March.

Net exports emerged as the biggest driver of economic growth of 0.7 per cent in the second quarter, according to official data, although according to most economists, the boost from trade would likely be temporary, especially given the strength of sterling.

"The (PMI) is still broadly consistent with stagnation, or even a mild downturn, when compared to official data," said Dobson.

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