UK manufacturing stuck in recession in December

LONDON, Jan 2 Reuters reported that British manufacturers ended 2001 rooted firmly in recession with output falling at its fastest rate for three years and job losses running at the quickest pace for a decade, a key survey showed on Wednesday. The report, compiled by the Chartered Institute of Purchasing and Supply (CIPS) and sponsored by Reuters, showed the overall manufacturing activity index slipped to 45.2 in December, down from 45.6 in November.

It was the lowest activity reading since January 1999 and the 10th consecutive month that the index has come in below the critical 50 level, signalling decline compared with a year ago.

The reading was below the 45.5 average forecast of economists polled by Reuters. It also contrasted with an identical survey carried out for the euro zone where the Reuters Purchasing Managers Index for the 12-nation area rose for a second month running to 44.1.

Financial markets, preoccuppied with the launch of euro notes and coins, paid little heed to the survey which is unlikely to have much impact on British interest rate policy.

Manufacturing, which accounts for roughly one-fifth of the UK economy, succumbed to its third recession in the last decade prior to the September 11 attacks on the United States, according to offical data.

Hit by the strength of the pound against the euro, weak global demand and fading business confidence manufacturers have had to shed thousands of jobs and scale back output to survive.

``It's a dismal picture for UK manufacturers. What we're seeing is they're trying to improve their efficiency by meeting any new orders that they get directly from stocks,'' said Melinda Johnson of CIPS.

PAYROLLS FALL FOR 47TH MONTH IN ROW

December's survey recorded the sharpest contraction in stocks of finished goods in the 10-year survey history with the index crashing to 41.4 from 46.7 in November.

The employment index slumped to 42.0, its 47th consecutive month below 50 and the lowest reading in the survey's 10-year history.

Manufacturers' plight was typified last month by U.S. construction equipment maker Caterpillar Inc's (CAT.N) decision to close it Perkins Engines diesel engine plant in Shrewsbury, England with the loss of 520 jobs.

CIPS found that almost one-third of all purchasing managers reported that production levels had been cut back during December, generally in response to weak demand.

Its output index fell to 44.7, down from 47.9 in November and the lowest for exactly three years.

There were some small glimmers of optimism for manufacturers, however.

Order books declined for a ninth consecutive month but at the slowest pace for five months. The CIPS new orders index bounced up to 47.0 in December from 45.6 in November.

Efforts to reduce costs by shedding labour were assisted by a further sharp fall in average purchase prices for companies.

``Falling demand and excess supply enabled a significant number of firms to negotiate lower prices with suppliers for many commodities. Lower oil prices also helped to reduce input costs,'' CIPS said.

Its input prices index came in at 40.9 in December, up slightly from 40.4 in November but below 50 for an eighth month running.