Blow as manufacturing growth slips to 20-month low

Britain's manufacturing sector grew at its slowest pace in 20 months in May, a key survey yesterday revealed, underscoring the fragile state of the economic recovery.

The weak outcome makes it a near certainty that interest rates will be kept on hold at next week's meeting of the Bank of England's rate-setting committee. Economists said borrowing costs were now unlikely to rise before November.

The Markit/CIPS purchasing managers' index for the manufacturing sector fell to 52.1 last month from a downwardly revised 54.4 in April, well below the 54.1 consensus forecast.

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While any reading above 50 indicates growth in overall activity, the latest result is the weakest since September 2009 and was blamed on a sluggish domestic market, particularly for consumer goods, the slowest growth in export orders in eight months and the impact of extra public holidays.

It is certain to raise concerns about the ability of the UK economy to withstand the government's tough austerity measures.

Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club, said: "The manufacturing PMI has been dropping like a stone over the past few months and, with activity now barely growing, these results will trigger genuine concern about the sustainability of the recovery."

The survey also highlighted the ongoing impact of the Japanese earthquake in March, which has disrupted supply chains.

Consumer goods producers and small-sized manufacturers turned in the weakest performances during the month. However, the report brought some cheer with an increase in staffing levels for the 14th consecutive month, while input and output prices moderated.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Manufacturers appear to be finding life more challenging as stock rebuilding wanes and tighter fiscal policy weighs down on domestic demand. There are also signs that global demand is slowing as export orders fell back markedly."

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