Fears grow over health of manufacturing sector

The Chartered Institute of Purchasing and Supply's (CIPS) activity index, where a reading over 50 indicates growth, slipped to 53.4 last month – the lowest since last November. CIPS also downgraded its estimate on activity in August to 53.7 from the 54.3 it previously reported.

The study found weaker demand from the consumer goods sector contributed to the first decline in new export orders since July last year.

Economists said the CIPS research offered more evidence that the second quarter marked the high spot for UK manufacturers following healthier demand from home and abroad and the benefits of the weak pound and stock rebuilding.

Vicky Redwood, senior economist at Capital Economics, noted that a drop in the CIPS output balance from 55.8 to 54.8 was consistent with quarterly growth in manufacturing output of less than 0.5 per cent – down from 2 per cent earlier this year.

She added: "The survey adds to other evidence suggesting that the economic recovery is fading fast." CIPS stressed there were still some positives for UK manufacturing given that the sector has seen growth for 14 months in a row and that cost inflation also eased to a six-month low, although it remains well above normal.

Chief executive David Noble said producers will be closely monitoring sentiment in the investment and consumer goods sectors in light of this month's Government spending review and in the run-up to Christmas.

He added: "Any renewed crises may make manufacturers and their suppliers increasingly cautious about the sustainability of the recovery."