UK manufacturing recovery continued to slow in September. New export orders declined for first time since July 2009

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Key points:
Manufacturing PMI at ten-month low of 53.4 in September.
 Growth of production eased again, as rate of increase in new orders remained subdued.
 New export orders fell slightly, as global demand weakened.

The recovery of the UK manufacturing sector continued to slow in September, as growth of output lost further momentum and the rate of increase in new orders improved only slightly following the marked downshift seen in the previous month.

The seasonally adjusted Markit/CIPS UK Manufacturing PMI which is calculated from data on new orders, output, employment, supplier performance and stocks of purchases fell to a ten-month low of 53.4 in September, down from a revised figure of 53.7 in August. The PMI has nonetheless now posted above the 50.0 no-change mark for 14 months in a row.

Rob Dobson, Senior Economist at Markit and author of the UK Manufacturing PMI, commented: "September saw the weakest expansion of UK manufacturing for a year, but some reassurance can be gained from the fact that growth has merely slowed from an exceptionally strong rate in the first half of 2010, and the latest PMI remains in line with the average seen in the years of robust manufacturing growth leading up to the financial crisis. The sector has now also recouped over 30% of its recession losses.

"However, more worrying is the order book trend, with total orders rising only slightly following the marked downshift in August, and new export orders falling for the first time since July 2009. This suggests that the slowdown in production has further to run.

"Furthermore, a major driver of the deteriorating order book trend was the first drop in orders for investment goods since last November, contrasting with the fifteen-year high rate of growth seen in the spring. These orders correlate closely with official data on investment spending, for which a sharp upward revision in the second quarter had raised hopes for a more sustainable looking recovery. The PMI therefore suggests that companies have become more cautious in terms of their capital spending."

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply, said: "Whilst growth rates have withered from the highs of early summer, there are still some positives for  K manufacturing. Growth is still in the black and cost inflationary pressures are easing despite ongoing supply-chain pressures. Shortages of some items may still be leading to higher input prices,  but sluggish new order books and a rebalancing between levels of new purchasing and stock-holding may start to alleviate some of the pressure on suppliers.

"Looking ahead, confidence is key. The investment and consumer goods sectors were the main drags on manufacturing growth in September, and producers will be closely monitoring sentiment in these areas in light of the forthcoming government spending review and the run-up to Christmas. Any renewed crises may make manufacturers and their suppliers increasingly cautious about the sustainability of the recovery."

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