By Stephen Wilmot, 01 September 2010
It's official: the recovery is now slowing. The widely-watched purchasing managers index (PMI) for UK manufacturers clocked its lowest reading since last November in August. At 54.3, the needle is still pointing to positive growth territory (anything above 50 signals growth). But it is closer to the red than it was in July, when the index clocked 56.9.
There were also clear signs the August reading wasn't just a one-off blip. The growth in new orders has been slowing for some months and the ratio of new orders to inventories – a key forward indicator – is now at its lowest level since the spring of 2009.
Unsurprisingly, production growth slowed fastest in the consumer goods sector. Component manufacturers were also affected by the trend, though not to the same degree. Only capital goods maintained their momentum, which may be because they serve export markets or because companies, unlike consumers, have relatively low levels of debt.
None of this comes as a surprise after the exceptional growth figures posted in the spring – the Office of National Statistics (ONS) revised its estimate of Britain’s second-quarter growth up from 1.1 to 1.2 per cent, making it the nation's strongest quarter of growth in more than 10 years.
The strength of the second-quarter numbers can partly be attributed to project delays caused by poor weather in the first three months. That's particularly true in the construction industry, which reported its best quarter since 1982. And the temporary effect of restocking by manufacturers and middlemen was an even more powerful boost, accounting for a full percentage point of the growth, according to economist Azad Zangana of Schroders. A recovery growth rate of more than 1 per cent per quarter was never sustainable.
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