Manufacturing suffers new slide

BRITAIN'S battered manufacturing sector went from bad to worse in May, as factory activity shrank at its fastest pace for more than two years.

The closely-watched purchasing managers' index from the Chartered Institute of Purchasing and Supply registered 47.3, down from 49.1 in April and below the 50 'no change' level. It was the fastest rate of contraction since March 2003.

A fall in new business was the main reason for the sharp deterioration, leading manufacturers to cut production and axe staff.

Firms linked the fall to increased competition from foreign producers, as well as weaker demand from export markets, especially the eurozone, and domestic retail sector.

The pound fell and short sterling rallied as traders judged the dreadful report made it more likely interest rates would be on the way down sooner rather than later.

'This is a particularly depressing report on the manufacturing sector, even by recent standards, and it seems set to act as a significant drag on growth again in the second quarter,' said Howard Archer, economist at City research firm Global Insight.

'Clearly, manufacturers will be hoping the Bank of England cuts rates well before the year-end.'