May 1, 2009 / 8:35 AM / 11 years ago

Factory activity decline slows in April

LONDON (Reuters) - The manufacturing sector contracted at its slowest pace in 8 months in April, as the weak pound helped support new orders, a survey showed on Friday.

A worker checks spinning machines, that twist fibres of cashmere together to give them strength and wind them onto bobbins, at Scottish textiles company Johnstons in Elgin, Scotland May 20, 2008. REUTERS/Sarah Marsh

The CIPS/Markit manufacturing purchasing managers’ index improved to 42.9 in April from an upwardly revised 39.5 in March. Analysts had expected a more modest improvement to 40.0.

The headline index is the highest since last August, although it has been below the 50 level which separates expansion from contraction for more than a year.

The survey showed an improvement in most of the 11 sub-indices, with new orders and export orders showing particularly big increases.

The new orders index rose to 46.3 in April from an upwardly revised 39.4 in March — the biggest jump in the index since 1996 and marking the slowest rate of contraction since last April.

The export orders index rose to its highest since last March at a whisker below 50 in its biggest increase since CIPS started polling for this information in 1996.

“The sterling exchange rate was the main factor boosting competitiveness abroad,” the survey said.

The pound has lost nearly a third of its value against other major currencies over the last 18 months and policymakers have been counting on exports to help lift Britain out of recession.

The economy contracted by 1.9 percent in the first three months of this year and is expected to suffer its sharpest downturn this year since World War Two, although some policymakers reckon the worst of the decline may be over.

The Bank of England has responded by slashing borrowing costs to a record low of 0.5 percent and buying assets to get money flowing through the economy again, while the government has delivered a 20 billion pound fiscal stimulus.

Those measures will take time to feed through, but the PMI survey offers some hope that manufacturing activity may be starting to stabilise.

The manufacturing output index continued to indicate a decline in activity, albeit at its slowest pace since last August. And destocking continued apace with stocks of finished goods falling at the joint second-fastest rate on record.

Rob Dobson, senior economist at survey compiler Markit, said manufacturers were still wary about the outlook.

“Caution remains the main watchword for manufacturers, reflected in efforts to trim excess capacity, cut costs and reduce inventory holdings,” he said.

The survey showed that over one third of manufacturers cut jobs last month, although the pace of decline in employment levels was its slowest since last November.

It also showed that inflationary pressures abated, with the input prices index hitting its lowest since February 2002, while the index gauging factory gate inflation fell to its lowest since records for that information began in 1999.

Detailed PMI data are only available under licence from Markit and customers need to apply to Markit for a licence.

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Editing by Toby Chopra

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