Slowdown in growth of manufacturing a blow to recovery

BRITAIN'S manufacturing sector grew at its slowest pace for nearly two years in June, figures yesterday revealed, raising fresh doubts about its ability to power the nation's economic recovery.

The purchasing managers' index, compiled by Markit and the Chartered Institute of Purchasing & Supply, where a reading of more than 50 indicates growth in activity, slowed to 51.3 last month, from 52 in May.

The lowest reading since September 2009 was brought about by weak domestic demand and slower growth in exports as the global economy "drifted into a softer patch" in the wake of the Japanese tsunami and eurozone debt crisis.

Politicians had hoped the sector, which accounts for about 15 per cent of total gross domestic product, could play a key part in the UK economic recovery but its growth has slowed every month since hitting a record high at the start of the year.

The UK government is banking on private companies creating jobs to make up for the loss of hundreds of thousands of public sector positions, cut as part of the drive to eliminate Britain's record budget deficit.

Rob Dobson, senior economist at Markit, described the report as worrying and said the market had slipped closer to stagnation.

He added: "With strong headwinds already in place and austerity measures likely to put increasingly counteractive pressure on domestic and consumer demand, it looks as if manufacturing has entered a slower growth phase, which could be with us for some time.

"The survey data will call into question the sector's ability to play a major role in delivering a robust and sustainable economic recovery."

The average reading for the sector over the second quarter of 2011 is the lowest since the UK pulled out of recession at the start of 2010.

Manufacturing production levels posted a modest increase but the underlying trend was still one of moderating growth, the survey noted.

New orders fell for their second successive month, sparking fears that the slowdown in growth will continue.

The number of jobs created by the sector slowed sharply, sinking to a nine-month low.

But input price inflation reduced to its weakest level in 18 months, reflecting recent falls in the cost of oil and other commodities.

Howard Archer, chief UK economist at IHS Global Insight, said: "This is a hugely disappointing survey, which fuels currently mounting concerns over the economy.

"The manufacturing sector has come off the boil and is cooling rapidly after a decent recovery in 2010 and early 2011."

The UK survey came amid a flurry of manufacturing data from around the world.In contrast to Europe and Asia, where China's manufacturing sector expanded at its slowest pace in 28 months following government policies to prevent the economy there from overheating, the pace of growth among US manufacturers picked up for the first time in four months.

The US Institute for Supply Management said its index of national factory activity rose to 55.3 in June from 53.5 the month before. The reading topped expectations for 51.8, according to a poll of economists.

l Almost 140 jobs could be lost under plans to transfer work from the UK to Japan. Consumer electronics giant Panasonic revealed that it was looking at options to transfer work from its TV design centre in Cardiff, South Wales.