Order books manufacture hopes for a slow recovery

The latest Markit/Cips purchasing managers’ index (PMI) rose to a four-month high as domestic clients increased orders during August.

While the report’s headline barometer remained just below the 50 level that separates contraction from expansion, the 49.5 reading was well ahead of July’s downwardly revised 45.2 – its lowest level since May 2009.

The jump is likely to bolster expectations that the Bank of England will stick to its guns on Thursday and keep both its quantitative easing programme and interest rates on hold as it looks for further signs of economic stability.

However, pressure still remains on the coalition government to take bolder steps to drag the country out of a recession that has continued into a third quarter.

The EEF manufacturing organisation warned yesterday that firms were facing the toughest conditions in nearly three years as the sector struggles against headwinds from the eurozone.

According to the PMI snapshot, a stagnation in new orders was a marked improvement from the slump seen the previous month, with the orders index jumping to 49.9 from the 41.8 in July – the biggest one-month gain in the survey’s history.

Cips chief executive David Noble said a repeat of July’s performance would have been unthinkable. “We can take consolation from August’s figures in that they were less bad than the disastrous month before,” he noted. “We have witnessed a return to the status quo of flat growth in a fragile economy.”

ING economist James Knightley said one-off factors such as the Olympics and the delayed effects of the Diamond Jubilee may have influenced the result.

“The report is consistent with stagnation in the UK’s manufacturing sector rather than the deepening recession hinted at by official data,” he added.

The manufacturing sector accounts for less than 15 per cent of Britain’s gross domestic product.