- Output and new orders both register falls since January
- Tough market conditions, both at home and abroad, weigh on demand
- Staffing levels reduced at quickest pace for 40 months


The Markit/CIPS manufacturing sector purchasing managers´ index (PMI) for the month of February fell to a level of 47.9 in February, down from a reading of 50.5 for the month before, which itself had been revised down from a preliminary reading of 50.8.

The consensus estimate had been for a small up-tick in the PMI to 51.

The UK manufacturing sector lost considerable momentum during February, with output, new orders and employment all posting net reductions since January. Also worth pointing out, purchasing activity was cut markedly, "as manufacturers continued to signal a preference for lower stock holdings," Markit explains.

In particular, new orders fell for a second successive month and at an accelerated pace. The latest fall was the sharpest since last July, amid reports of tough market conditions both at home and abroad. Emerging markets, nevertheless, were still described as a source of growth. Poor weather was also mentioned as a factor negatively impacting on order book volumes. The Chinese Lunar New Year was reported to have had a disruptive effect.

As for prices, companies continued to seek to recover profit margins. Weakness in Sterling was said to have contributed to pressures on the prices of imported goods.

For Chris Williamson, Chief Economist at survey compilers Markit: "The return to contraction of the manufacturing sector is a big surprise and represents a major setback to hopes that the UK economy can return to growth in the first quarter and may avoid a triple-dip recession.

"The data so far this year point to manufacturing output falling by as much as 0.5%, meaning a strong rebound is needed in March to prevent the sector from acting as a drag on the economy as a whole in the first quarter."

Of particular interest, Williamson believes falling levels of employment show just how little optimism managers now have in the sector´s prospects.

The latter was also described as 'ominous' by David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply. He highlighted that the fall in employment was the largest for 40 months. "Moreover, the sector seems to continue to grapple with the on-going problems of playing hostage to European fortunes, whilst unable to fully take advantage of emerging growth markets," he added.

Economists at Barclays Research describe today´s report as a "big disappointment" and "discouraging." They add that, "On the external front, the lower level of sterling should help the sector, boosting exporters' profitability and helping them increase their market share overseas, but these effects are likely to take time to feed through.

"More important in the near term is demand from the euro area, and although our baseline case is that this improves gradually during the course of this year, signs of an improvement remain patchy. The outlook for manufacturing remains shaky."


AB

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