Manufacturing growth slows down

The manufacturing sector's recovery is faltering

The UK's manufacturing sector showed an unexpected slowdown in September, easing pressure on the Bank of England to raise interest rates again.

The Chartered Institute of Purchasing and Supply's (CIPS) index fell from 53.1 in August to 52.20 in September, despite forecasts of a rise to 53.5.

A reading above 50 still indicates that the sector is expanding, but the pace of growth is clearly dropping.

Analysts cited higher oil prices, base rates and slowing domestic demand.

They expect the manufacturing sector to continue to slow down as oil prices hover about their recent record high of $50 a barrel.

Rates peak?

The figures are the latest in a string of recent data suggesting that the Bank of England's five interest rate hikes since November are taking effect.

This is certainly going to add to market expectations that rates have peaked. George Buckley, Deutsche Bank

The news sent sterling down to a seven-month low against the euro, reflecting speculation that the Bank of England has nearly completed its current round of interest rate rises.

"If we're going to get another rate hike, we're going to need stronger data," said economist George Buckley of Deutsche Bank.

"This is certainly going to add to market expectations that rates have peaked. These figures are remarkably weak."

The CIPS's new orders index fell for the second month in a row in September to 51.8 from a downwardly-revised 53.1 in August.

The figure was well off the 59.1 mark, struck two months ago, which was the highest in nearly eight years.

Weaker domestic demand was partly due to a drop in orders from the Ministry of Defence, the report said.

Exports improved, however, with the export orders index climbing to 50.1 from a near two-year low of 47.7 in August.