Growth in UK manufacturing slows

Manufacturers received fewer new orders

Growth in the UK manufacturing sector eased in December, as worries about the credit crunch led to new orders hitting a near two-year low, a survey shows.

The data is likely to boost hopes of another interest rate cut to cushion against an economic slowdown this year.

Firms reported that recent turmoil in financial markets had shaken client confidence, said the Chartered Institute of Purchasing and Supply.

New manufacturing orders fell to their lowest level since March 2006.

The Chartered Institute of Purchasing and Supply/NTC said its purchasing managers' index fell to 52.9 in December, below the 53.6 that analysts forecast and down from the 54.3 recorded in November.

But it remained above the 50.0 mark separating growth from contraction for the 29th successive month.

New orders fall

"Client confidence is still being affected by tight credit market conditions and high cost inflation, leading many to postpone non-essential expenditures," said NTC economist Rob Dobson.

The new orders index fell sharply to 51.7, its lowest since March 2006, from 55.0 in November.

The survey also indicated that the inflationary pressures facing the sector are easing although prices remain high.

Companies have paid higher prices for food products, fuel, metals, paper products, plastics and oil over recent months.

The Bank of England's Monetary Policy Committee cut interest rates to 5.5% from 5.75% last month and many economists expect the central bank to lower the cost of borrowing further in coming months.

"That price pressures appear to be easing as activity slows will allow the MPC to respond to the weaker economic climate by cutting rates," said Paul Dales, at Capital Economics.