Page last updated at 14:33 GMT, Tuesday, 1 December 2009

Surprise slowdown in UK manufacturing growth

Welder in factory
Factory activity is still above its long-term average, analysts say

UK manufacturing activity slowed in November as new orders fell sharply, a survey has indicated, casting doubts on the strength of the sector's recovery.

The Chartered Institute of Purchasing & Supply (CIPS) index fell to 51.8 from a revised 53.4 in October, while new orders fell to 53 from 58.

October's first estimate of 53.7 was the index's highest score in two years.

Despite the fall in the rate of activity, the manufacturing sector still expanded in November.

Any score above 50 in the index indicates growth.

Recovery will be fragile and the risk of a double-dip recession remains high
Hetal Mehta, senior economics adviser, Item Club

"The figures are disappointing. They show a loss of momentum as hopes were rising about a recovery. It raises questions over the sustainability of some of the drivers behind the pick-up in activity," said Lena Komileva at Tullet Prebon.

However, the fall was in part due to the big rise in activity the previous month, analysts said.

"The rise last month looked unsustainably large as it was way above the long-term average. I don't think [November's figures are] necessarily such a bad outcome - [the index] is still above its long-term average," said Ross Walker at Royal Bank of Scotland.

'Fragile recovery'

The Ernst & Young Item Club also highlighted the need to focus on the continuing rise in overall output.

"The important thing is that output is still increasing and this intensifies the likelihood of the UK coming out of recession by the end of this year," said Hetal Mehta, the club's senior economic adviser.

She added that manufacturing output was likely to grow in the next two quarters, because stock levels need to be built up from a low base.

However, this spurt would be short lived as "we enter a higher-tax environment, with VAT back at 17.5% or above," she argued.

"Recovery will be fragile and the risk of a double-dip recession remains high. It still looks like growth will struggle to hit 1% next year," she concluded.

The UK is the only G20 economy still in recession. Between July and September, the economy contracted by 0.3%.

Most analysts expect the UK's economy to start growing again in the final three months of this year.



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