UK manufacturing slows less than feared in November: PMI

LONDON Mon Dec 3, 2012 4:16pm IST

LONDON (Reuters) - British manufacturing activity shrank much less than expected in November although the sector remains in a precarious state as orders edged down, a survey found on Monday.

The Markit/CIPS Purchasing Managers' Index for the manufacturing sector jumped to 49.1 - its highest level since August - from October's downwardly revised 47.3. That beat the median forecast of 48.0 in a Reuters poll of economists and exceeded even the highest prediction of 48.9.

Nonetheless, the index remains below the 50 mark that separates growth from contraction, where it has been since April.

"Purchasing managers have provided the chancellor with some better-than-expected news on the performance of the manufacturing economy ahead of the Autumn Statement," said Rob Dobson, senior economist at data collator Markit.

"However, the sector is merely stabilizing."

Chancellor, or finance minister, George Osborne will update parliament on his budget plans on Wednesday and is expected to defend his austerity plans.

Britain has suffered two recessions in the past four years, despite the Bank of England slashing interest rates to a record low of 0.5 percent and creating 375 billion pounds - equal to around a quarter of GDP - in new money to promote growth.

The economy is seen growing by a tepid 0.1 percent in the current quarter, with little pick-up predicted over next year.

The recovery has been hampered by a drawn-out debt crisis in the euro zone, Britain's main trading partner, as well as by the government's tough austerity plans.

"The renewed recession in the euro zone and sluggish growth further afield clearly remain big worries for UK producers... At the same time, demand in home markets remains frustratingly weak," Dobson said.

New orders fell for the second month, with the index coming in at 49.7, albeit well up from October's 47.7. New export orders fell in all but two months this year as the global economic uncertainty rumbles on.

In a worrying sign for central bankers who hoped that easing inflation would help consumers spend more, manufacturers hiked their prices at the fastest pace since June, despite input costs rising at their slowest pace in three months.

Factories also cut their workforce again in November.

In contrast, a PMI poll due on Wednesday is expected to show that growth in Britain's dominant services sector picked up pace in November.

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(Reporting by Jonathan Cable; Editing by Hugh Lawson)