Manufacturing PMI at 20-mth low

LONDON Wed Jun 1, 2011 9:39am BST

LONDON (Reuters) - Manufacturing activity grew at its slowest pace in 20 months in May, and weaker export and consumer demand led to the first drop in new orders in two years, fuelling fears about the pace of the UK recovery.

The Markit/CIPS manufacturing PMI headline index, published on Wednesday, fell to 52.1 last month from a downwardly revised 54.4 in April, well below the 54.1 consensus forecast.

The worst headline reading since September 2009 was blamed on a weaker domestic market, particularly for consumer goods, and the slowest growth in export orders in eight months. Extra public holidays also reduced activity.

The surprisingly weak figures will reinforce worries about the resilience of Britain's economy at a time of public spending cuts, high inflation and uncertain consumer demand.

Sluggish growth in the first quarter fuelled speculation the Bank of England will delay raising interest rates until around the turn of the year from a record low of 0.5 percent to let the recovery gather pace.

Manufacturing, which accounts for around 13 percent of UK output, had been one of the few success stories during a slow return to growth after a recession that ended late in 2009.

"The UK PMI suggests that manufacturing has moved from rapid expansion to near-stagnation," said Rob Dobson, senior economist at survey compiler Markit. "Domestic market weakness was the main drag on order books and output."

The slowdown hit consumer goods producers and smaller manufacturers the hardest, and there was disruption to supply chains from Japan's earthquake and tsunami, Dobson added.

The headline PMI index has stayed above the 50.0 level that separates growth from contraction for 22 consecutive months.

However, May's survey suggests growth in the sector is running out of steam.

The output index nudged into negative territory at 49.9 for the first time since May 2009, while the new orders index contracted for the first time since June 2009.

Output prices rose for a 19th consecutive month, although at a slower pace than in April. Input prices rose at the slowest rate in seven months and below the record highs seen at the start of the year.

(Editing by John Stonestreet)