Debt crisis blamed for contraction

The latest Markit/CIPS survey, where a reading above 50 represents growth, was at 48.6, although this was up from a three-year low of 45.9 in May and slightly better than City expectations.

Levels of output rose following sharp declines the previous month, but new business wins and overseas demand both contracted for the third month amid the eurozone crisis and slowing growth in the US and Asia.

The Queen’s Diamond Jubilee distorted the June picture, but the latest reading suggests the sector’s output is set to decline at least 0.5 per cent in the second quarter of 2012, Markit said, fuelling fears that the UK’s double-dip recession will continue.

The sector made job losses for the second month in a row, reflecting weak demand, and CIPS chief executive David Noble warned that further cuts loom unless orders recover.

He said: “The effects of the eurozone crisis and global economic slowdown are making it a tricky time to build on exports.”

Markit economist Rob Dobson said June’s production increase “provides hope that the wheels have not fallen off the manufacturing economy” amid resilience from the consumer goods sector.

But he added: “There’s no denying that the second quarter as a whole is looking weaker than the first quarter.”