July 1, 2008 / 8:35 AM / 11 years ago

UK manufacturing contracts sharply, prices surge-CIPS

** This data is protected by copyright — please see <PMI/DISCLAIMER> for more information **

* CIPS/Markit Purchasing Managers Index <PMI/GBMA1> for UK manufacturing sector falls to 45.8, sharpest contraction since Dec 2001

* Output index 43.5, weakest since Dec 1998

* Highest output and input price indices since series began

By Christina Fincher

LONDON, July 1 - Britain’s manufacturing sector contracted last month at its sharpest rate since December 2001 as output and new orders fell at their fastest rate in almost a decade.

However, there was no let-up in inflationary pressures with input costs and output prices both rising at the fastest rate since the series began, which is sure to worry Bank of England policymakers.

The Chartered Institute of Purchasing and Supply/Markit purchasing managers’ index fell to 45.8 in June from a downwardly revised 49.5 in May.

That was below the consensus forecast of 49.8 and the weakest since the end of 2001, when activity was hit in the wake of the Sept. 11 attacks on the United States. The 50 mark separates expansion from contraction.

“The UK manufacturing sector buckled under the weight of a brutal combination of survey record cost inflation and weak domestic demand in June,” said Rob Dobson of Markit Economics.

The survey compilers noted that a combination of client uncertainty, rising inflationary pressure and the high cost of credit led some pipeline projects to be either cancelled or postponed.

The output index tumbled to 43.5 in June from 49.2 in May, signalling the most severe contraction of manufacturing production since the end of 1998. The decline came as companies cleared backlogs of work at the fastest pace in the history of the series.

Declining activity led companies to lay off workers at the fastest pace since August 2005.

Despite plummeting activity, evidence that companies are continuing to pass on rising raw material costs to customers is bound to concern Bank of England policymakers as they struggle to bring inflation back to target.

The input price index surged to 82.1, the highest rate since records for this index began more than 16 years ago.

The output price index rose to 62.6 from 62.0 in the previous month. Output prices have now increased in each of the past 35 months, by far the most sustained period of output price inflation in the history of the series. For full British manufacturing data.... <PMI/GBMA1> For text of survey ......................[GB/TEXTM] For overall guide to all PMIs......... <PMI/INDEX1> For table of survey.................. [GB/PMIMANF]

(Editing by Stephen Nisbet)

((uk.economics@reuters.com; Tel +44 207 542 7748; christina.fincher.reuters.com@reuters.net)) Keywords: PMI MANUFACTURING/BRITAIN

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