-UK Manufacturing PMI down for second month running
-Sharper falls in output and new orders, as export demand remains weak
-Cost-caution leads to job losses, stock depletion and lower purchasing



British manufacturers pulled in their horns a little bit more in October, with some reports of lower demand in Asia and the continuing crisis in the Eurozone led to the second fastest pace of decline in new export orders (to 45.3 from 47.2) in just over a year making for a sobering read.

Thus, the UK manufacturing sector purchasing managers´ index (PMI) for the month of October retreated to 47.5 points, after a reading of 48.1 (Preliminary: 48.4) in the month before, according to the figures just released by Markit.

The consensus estimate had been for a reading of 48.

The above data marks the sixth consecutive month of contraction in the sector, with the rate of decline in production volumes (to 45.8 from 47.3) the second-sharpest seen during the past three-and-a half years. The main factor underlying lower output was the renewed reduction in new work received (to 47.7 from 49.9) for the seventh month running.

"While the road to an export-led recovery is still blocked by the ongoing difficulties in the Eurozone, it is concerning to hear further reports of the global slowdown hurting trade with other regions such as Asia," said Rob Dobson, Senior Economist at survey compiler Markit.

By sectors, consumer goods were a pocket of strength, as they bounced back strongly after September´s fall. Conditions, however, deteriorated in intermediate and investment goods.

Signs of spare capacity also encouraged some manufacturers to reduce employment, although the gauge for employment actually improved to 49 points from 47.3, even if it still stands below the 50 point unchanged mark.

Manufacturers remained cost-cautious overall, leading to lower levels of purchasing and further depletion of inventory holdings, with the rate of reduction in input buying volumes accelerated sharply and was one of the fastest signaled during the past three-and-a-half years, Markit adds.

Data foreshadows consumer price inflation pressures

For their part, economists at Barclays Research write today that: "Although we would caution against taking the PMI survey at face value (...) We expect manufacturing output to contract during 2012 as a whole and to experience only a slow recovery next year."

As well, they highlight that: "If sustained, the difference in the pace of increases between input (to 58 from 57.4) and output prices (to 51.2 from 50.5) could lead to a squeeze in firms' profit margins similar to that seen during most of 2011. This pick-up in price pressures is in line with our expectations that inflation is likely to accelerate again in the coming months (...) We expect inflation to be around 2.5% for the rest of this year and to remain above the MPC target next year."



AB

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