Manufacturing shrinks for 4th month

By Matt Falloon

LONDON (Reuters) - The manufacturing sector shrank for the fourth month in a row in August as demand from home and abroad fell, a survey showed on Monday, reinforcing expectations that the economy is heading for recession.

The Chartered Institute of Purchasing and Supply/Markit said its purchasing managers' index unexpectedly rose to 45.9 last month from a downwardly revised 44.1 in July. Analysts had expected a reading of 44.0.

A score below 50.0 indicates contraction.

"The downturn in manufacturing continued into August, as a lacklustre domestic market and high inflationary pressures eroded confidence at businesses and households alike," said Rob Dobson, an economist at Markit.

"These factors weighed heavily on order books, while the ensuing global economic slowdown meant there was no support from the external sector."

The figures, although better than expected, still point to a marked economic slowdown and will strengthen predictions that Britain is about to enter its first recession since the early 1990s.

The figures showed the output of many firms was bolstered by working on existing orders, rather than new business. While the output index rose to 48.7 in August from 43.2 in July, backlogs of work decreased at the sharpest rate since the series began.

That indicates that the sector could shrink further unless orders start to pick up again.