Manufacturing growth weakens

The case for leaving interest rates unchanged strengthened today as British manufacturing suffered a further loss of momentum in September.

According to a key survey from the Chartered Institute of Purchasing and Supply, manufacturing grew at its weakest pace in more than a year last month, with new orders slipping to their lowest levels since June 2003.

The latest evidence of the fragile nature of the manufacturing recovery came on the heels of recent data on retail sales, consumer confidence and house prices, all showing signs of a weakening economy.

"The manufacturing sector has clearly lost momentum since growing strongly in the second quarter, affected by higher interest rates, strong oil prices, and at least a temporary slowdown in global economic activity," said Howard Archer, an economist with the consultants Global Insight.

Mr Archer added: "This is another reason for the Bank of England to leave interest rates unchanged over the rest of this year, although it will not be happy to have seen output prices rise further."

The Bank of England's monetary policy committee (MPC) has raised borrowing costs five times since last November. Many economists had expected the Bank to raise rates next month by a quarter-point, taking them to 5%. But those expectations have dimmed considerably in the light of the recent evidence of a spate of weak readings on the economy.

The CIPS purchasing managers' index fell to 52.2 from 52.8 in August, defying expectations for a rise to 53.5. Although the figure is still above the 50 threshold that separates expansion from contraction, it was the second consecutive monthly decline in a sector that makes up about one-sixth of the UK's economy.

The new orders index fell for a second month in September to 51.8 from a downwardly revised 53.1 in August. The figure was well off the peak of 59.1 of two months ago which was the highest in nearly eight years.

Meanwhile, rising oil prices pushed input costs to a nine-year high. Analysts expect the trend to continue as oil prices are hovering around their recent record high of $50 a barrel.