LONDON (Reuters) - Manufacturers reported some of the weakest conditions ever in January when they cut jobs at a record pace, monthly purchasing managers index data showed on Monday.
The headline number rose to 35.8 in January from December’s 34.9 — slightly better than the return to November’s record low of 34.5 forecast by economists but still the third-weakest reading in the series’ 17-year history.
“The latest PMI figures highlight the appalling market conditions that UK manufacturers are currently facing,” said Rob Dobson, an economist for pollsters Markit, who conduct the survey for the Chartered Institute of Purchasing and Supply.
“Although the PMI output index rose for the second month running it was still consistent with production contracting by around 6 percent year-on-year,” he said.
Weaker global demand outweighed any benefit from sterling’s fall against major currencies, and domestic conditions were especially poor due to the crisis hammering carmaking, construction and retail.
“The principal factors underlying the weak performance of UK manufacturing remained the downshift in global aggregate demand and frozen credit markets,” the survey said.
Sterling extended losses on the data to hit a session low against the dollar, down 2 percent on the day, and economists warned that the figures pointed to a continuing contraction in jobs and output.
“We’re looking for sub-potential economic performance for a very long time going forward. The rises in unemployment we’ve seen are only the beginning,” said Nick Kounis, an economist for Fortis.
“The index is still consistent with collapsing manufacturing output, but it does provide tentative evidence that the fourth quarter was the deep point of recession,” he said.
The employment element of the index hit a fresh record low, falling to 33.5 from 33.9 as firms cut capacity and costs to match thinner order books.
The further a number in the survey is below 50, the faster the pace of decline.
The fall reflects the raft of redundancies announced by manufacturers over the past month, which the survey said were concentrated in bigger firms. Steelmaker Corus said it was cutting 2,500 jobs on January 26 and carmaker Nissan announced 1,200 lay-offs at the start of the month.
Backlogs of unfinished work fell to a series low, and firms reduced stocks of finished goods to the lowest level since January 2002 as they sought to trim working capital costs.
Businesses reported little net benefit from sterling’s sharp fall in the last few months of 2008, when it lost a fifth of its value against the dollar.
While they achieved higher average sterling revenue from overseas sales, strong competition and lower demand reduced their pricing power and the cost of some imported raw materials rose.
Consumer goods industries reported an accelerating downturn in output and new orders, with especially weak domestic demand, while companies producing investment and intermediate goods reported some levelling-off of the rapid decline.
Editing by Mike Peacock