Manufacturing figures at 28-month low a 'genuine cause for concern', say economists

The Markit/CIPS UK Manufacturing Purchasing Managers Index (PMI) fell to 47.4 from a score of 50.8 in September, with a substantial reduction in new orders. This was partly linked to clients "delaying purchases or destocking in response to the deteriorating global economic backdrop", according to the economists who compiled the data.

The monthly survey measures changes in activity levels across hundreds of manufacturers. It had previously shown that manufacturing activity in the UK had returned to "moderate" growth in September for the first time in three months. Although the figure had been adjusted down from an original 51.1, it remained above the score of 50 which indicates growth.

Markit said the October figure was the lowest since June 2009.

Nida Ali, an economic adviser to Ernst and Young's forecasting group the ITEM Club said the sharp decline was a "genuine cause for concern".

"What is particularly worrying is the decline in new orders, especially from abroad. Clearly the knock-on effects of the recent turmoil in financial markets are starting to be felt on the UK economy, and these trends are likely to continue in the coming months" she said.

Manufacturing law expert John Tyerman of Pinsent Masons, the law firm behind Out-Law.com, agreed with the analysis. He pointed out that manufacturing sector figures out of China earlier in the week had also fallen - their first drop in three months.

"I think that there is so much uncertainty around that no one really has a clue what's going to happen and consumers are hunkering down," he said.

Markit had warned that a large part of September's surprise growth related to companies working through a backlog of orders already on their books. Over the course of October this backlog fell to its lowest level in over two years, the survey said. This had led manufacturers to implement further job cuts, meaning that staffing levels fell for the fourth month running.

Rob Dawson, Markit's senior economist, said that the most worrying aspect of the survey was the decline in new orders coming through.

"Companies are facing tough conditions in both domestic and overseas markets, meaning that output is increasingly being sustained through the depletion of backlogs of work. A marked recovery in the replenishment rate of order books is needed to prevent the renewed manufacturing downturn becoming embedded," he said.

The reduction in input costs and inflation pressures shown by the survey was a "sole bright spot", he said.

Terry Scuoler, chief executive of manufacturers' organisation EEF said that the figures showed that uncertainty in the Eurozone was beginning to translate into weakening demand.

"So long as the crisis remains unresolved this is likely to hold back growth in the next few months. It is ever more vital that [the Chancellor's] Autumn Statement sends out a clear message to industry that the government is pulling every lever it has to promote investment and growth," he said.