Alarm bells ring as PMI falls below 50 benchmark

The latest monthly figures from the Chartered Institute of Purchasing (CIPS) Purchasing Managers' Index (PMI) showed the growth of output from factories slowing to near stagnation, failing order books and job losses being reported for first time since March 2010. CIPS CEO David Noble (pictured) said: "Alarm bells are ringing or the UK manufacturing sector". Noble added that he hoped that it was "merely moving into a slower but steady marathon pace as conditions prove to be increasingly challenging and threats remain." CIPS reported operating conditions in the UK manufacturing sector deteriorating for the first time in two years during July. Output growth slowed closer to stagnation, as new orders declined at the fastest rate since May 2009. The weaker performance of the sector impacted on the labour market, as manufacturers lowered employment for the first time in 16 months. At 49.1 in July, the PMI fell below its 50.0 neutral figure, down from 51.4 in June and showing its weakest reading since June 2009. Underlying the slowdown was a reduction in the level of new orders received. New business declined for the second time in the past three months and at the fastest pace for over two years. This mainly reflected lacklustre domestic market conditions, as levels of new export business rose for the tenth straight month. Companies reported improved sales to Australia, China, East Asia, New Zealand and the USA. Manufacturing employment declined slightly in July, representing a marked turnaround from the survey record jobs growth seen only five months earlier. Mark Lee, head of manufacturing, Barclays Corporate, said that very weak domestic demand had effectively stalled any momentum that had built in the UK manufacturing sector over the past two years, with the new figures highlighting a worrying trend of destocking among manufacturers, as they seemingly prepared for further declines in orders. "Manufacturers that export continue to see some upside in ongoing sterling weakness, but for those companies focused on the domestic market, there is very little relief in sight at present," he added. Rob Dobson, senior economist at Markit and author of the PMI said the downturn was not entirely unexpected given that the surge in inventory rebuilding, a purple patch in global growth and stable domestic demand during the first quarter of the year had "somewhat crumbled". Lee Hopley, chief economist at the manufacturers' organisation EEF observed that manufacturing may have stalled on the back of more general global weakening. She went on: "While output and exports remained positive there is no getting away from a considerably more difficult outlook for trading conditions compared with what we were seeing only six months ago. Evidence in the coming months will show whether these are temporary disruptions to output or whether the recovery has moved into the slow lane.