September 1, 2010 / 8:32 AM / 9 years ago

Manufacturing PMI falls to lowest since November

LONDON (Reuters) - Growth in the country’s manufacturing sector slowed more than expected last month, led by the weakest expansion in new orders for more than a year, a purchasing managers’ survey showed on Wednesday.

Van seats rest on the LDV production line at their plant in Birmingham, May 15, 2009. REUTERS/Darren Staples

The Markit/Chartered Institute of Purchasing and Supply Manufacturing PMI fell to 54.3 in August — below all forecasts in a Reuters poll — from a downwardly revised 56.9 in July. That was the lowest since November last year although it was still above the 50 mark which separates growth from contraction.

Sterling fell and gilts recovered some ground as the figures rekindled worries that Britain’s recovery is losing traction after surprisingly strong growth in the second quarter.

“It’s obviously disappointing reading and the troubling part is the big fall in the new orders component,” said Brian Hilliard, UK economist at Societe Generale.

Britain’s manufacturing sector has been expanding for just over a year but the pace has cooled steadily over the past four months.

The PMI’s new orders index, a leading indicator of activity growth, fell particularly sharply to 52.0 in August from 58.5 in July. That was its lowest level since June 2009 and its biggest one-month fall in more than six years. There was a slight pick-up in export orders growth, indicating the bulk of the slowdown came from weaker domestic demand.

The economy expanded by a surprisingly robust 1.2 percent in the second quarter but few believe this pace can be maintained in the second half of the year in the face of huge public spending cuts and renewed jitters in global financial markets.

The orders-to-inventory ratio, another forward-looking indicator, fell to its lowest in 17 months, suggesting activity is likely to slow further in the coming months.

“The marked deceleration in new orders does not bode well for output in the coming months,” said Hetal Mehta, an economist at Daiwa.

There were mixed signals regarding the inflation outlook. Input price inflation eased to its weakest since January but output price inflation gathered pace to only a whisker below peaks scaled in mid-2008.

Editing by Patrick Graham

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