UK manufacturing slide continues

Manufacturers have called for an interest rate cut

The UK's manufacturing sector has seen a sixth consecutive month of decline, according to a key survey of business conditions.

The Chartered Institute of Purchasing and Supply's (Cips) monthly purchasing managers' index fell to 48.1 in May, from 48.6 in April.

The index, which measures demand for manufactured goods, is a seasonally adjusted figure where anything below 50 indicates contraction, and anything above shows expansion.

The level of decline is, however, less than the 15-month low of 46.3 in March, triggered largely by the Iraq war.

May's decline reflected a similar fall in both output and new orders during the month.

Over-capacity

The sector has been helped by the recent strength of the euro, which made UK exports more attractive to European buyers, but the weakness of the US dollar had an adverse affect on other key markets.

Roy Ayliffe, director of professional practice at Cips, said: "Overall the manufacturing economy saw contraction in May, unaided by a falling US dollar."

Reports of over-capacity among manufacturers were also widespread in May, Cips said.

Last month, the Bank of England's interest rate-setting committee voted to keep interest rates unchanged at 3.75%, despite pressure for a cut from the manufacturing sector.

Martin Temple, director general of the Engineering Employers' Federation, said the decision was "out of line" with recent economic data.

The Bank meets again this week to consider rates and will announce its decision on Thursday.

Service sector hit

"While the pound has fallen to a more competitive level, weakness in the world economy will keep both recovery hopes and inflation in check," Mr Temple said.

The Cips data comes as two other surveys suggest the UK's service sector is struggling to recover and needs the boost of an interest rate cut.

The figures, from the CBI and Grant Thornton and from BDO Stoy Hayward, found the consumer slowdown was hitting firms hard.

BDO urged a quarter point cut in UK rates.