Manufacturing sector gloom ends the run of optimistic economic surveys

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THE downturn in Britain’s manufacturing sector worsened in October as companies received fewer orders and costs rose at a faster pace, a survey showed yesterday, ending a run of more hopeful data on the economy.

The CIPS/Markit Purchasing Managers’ Index (PMI) for the manufacturing sector fell to 47.5 from a downwardly revised 48.1 in September, dipping further below the 50 mark which separates growth from contraction.

The figure was also well below economists’ forecasts of 48.0 and, after positive surprises from third quarter growth numbers and retail and credit figures, it reopened the debate about the Bank of England wading in with more economic stimulus this month.

“It won’t swing the (QE) decision massively, it’s going to be a close call whatever way you look at it and inflation risks have moved up and certainly that will be something the committee are going to look at pretty closely,” said Investec economist Victoria Clarke.

Government bonds pared some losses after the data, though they continued to underperform their German equivalents as investors took a speech from the Bank’s deputy governor Charlie Bean as a sign that the appetite for more stimulus was fading.

The UK economy is still struggling to break a cycle of poor growth and recession, plagued by the biggest budget cuts in half a century and the debt turmoil which has hammered its trading partners in the eurozone.

After figures last week showed the economy grew a full 1 per cent in the third quarter, however, several analysts switched to forecast the Bank would not approve a new round of Government bond purchases at next week’s policy meeting.

Yesterday’s PMI data showed manufacturers cut production for a fourth month in a row and new orders fell at a faster rate than in September as export demand dwindled.