Latest data reveals slower pace to manufacturing recovery

The August Purchasing Managers' Index (PMI), from Markit/CIPS, fell to 54.3 from a revised 56.9 in July – its lowest level for nine months. The PMI figure is still above the neutral 50.0 mark, however, for the eleventh month in a row. Output, new orders and employment all continued to grow in August – but at slower rates. Output rose for the 15th successive month and though the rate of increase remains robust, it is easing. However, the strength of output growth was maintained, in part, through a substantial reduction in backlogs of work, as the rate of expansion of new orders eased sharply. The slowdown in production growth was centred on the consumer and intermediate goods sectors, as the rate of expansion at capital goods producers accelerated since July. August data suggested that manufacturing output may ease further in the coming months, as the new orders-to-inventory ratio fell to a 17-month low. UK manufacturers increased employment for the fifth straight month in August. Purchase price inflation eased to a seven-month low. Graeme Allinson, head of manufacturing at Barclays Corporate, said: "Despite a marked August slowdown in growth, UK manufacturing continues to climb back towards pre-recession output levels. However, there are still several key areas that must show further improvement in order to underpin a sustainable manufacturing recovery – stronger UK export growth, particularly in developing countries, employment moving from job replacement to job creation, and a marked increase in non-essential investment. "In comparison with other sectors we as a bank have seen very few bad debts within the manufacturing sector and virtually no write offs through the recession. This shows manufacturing is already lean, but also points to a conservative sector, reluctant to take on more debt even if opportunities are presenting themselves and their bank is keen to lend to the sector, as we are. This in itself could hinder UK manufacturing more than any other factor." David Noble (pictured), CEO at CIPS, said: "The looming public sector spending cuts are keeping UK manufacturers on tenterhooks and slowing the pace of the recovery. Whilst the volume of work continues to expand, businesses are taking a more cautious approach to new orders, with growth of order books slowing sharply in August. The government spending review in October should bring more clarity to the situation."