U.K. Manufacturers Cutting Jobs Points to Outlook Concerns

U.K. manufacturing grew at a sluggish pace last month and employment fell for the first time in more than two years, indicating concern among executives about the outlook.

In its monthly report published in London, Markit Economics said its factory index slipped to 51.5 from a revised 51.6 in August, where a reading above 50 indicates growth. A measure of new orders slipped to match the weakest pace this year.

While falling commodity prices are lowering companies’ costs and domestic demand remains robust, a strong pound and cooling Chinese growth are threatening exports. The index is “broadly consistent with stagnation, or even a mild downturn,” Markit said.

“The industrial side of the economy is playing no role in the economic recovery at the moment,” said Ruth Miller, an economist at Capital Economics Ltd. in London. “Looking ahead, the sector’s near-term prospects do not look much better.”

A separate survey by the British Chambers of Commerce underscored the challenges. The lobby group said all its gauges of manufacturing remained stagnant or fell in the third quarter, with an indicator of export sales reaching a six-year low.

“Confidence is low,” said John Longworth, director general of the BCC. “Global uncertainty, weakened demand from China and the strength of the pound are some of the factors likely hindering manufacturers’ performance.”

The pound stayed higher against the dollar after the Markit report and was trading at $1.5147 as of 10:27 a.m. London time, up 0.1 percent on the day.

Employment Falls

Markit also said that input costs fell the most in more than 16 years in September, while employment declined for the first time since April 2013.

“Job cuts send a signal that manufacturers are becoming more cautious about the future, which may lead to a further scaling-back of production at some firms,” said Rob Dobson, a senior economist at Markit. This will “add to broader growth worries.”

Dobson said its survey supports “dovish calls for a first rise in interest rates to be held off until industry returns to a firmer footing.” Bank of England policy makers led by Governor Mark Carney will announce their latest interest-rate decision in a week. While economists forecast economic growth of 2.6 percent this year, they also see the benchmark staying at a record low until the second quarter of 2016.

Before it's here, it's on the Bloomberg Terminal.