Growth in the country's manufacturing sector slowed more than expected last month, led by the weakest expansion in new orders for more than a year, a purchasing managers' survey showed on Wednesday.
The Markit/Chartered Institute of Purchasing and Supply Manufacturing PMI fell to 54.3 in August -- below all forecasts in a Reuters poll -- from a downwardly revised 56.9 in July. That was the lowest level since November last year although it was still above the 50 mark which separates growth from contraction in activity.
The figures support the view that Britain's economy is losing traction after surprisingly strong growth in the second quarter. They are also likely to bolster expectations that UK interest rates will remain at a record low 0.5 percent for many months to come.
The expected slowdown in the UK manufacturing recovery from its highs earlier in 2010 is underway, said Rob Dobson, senior economist at Markit Economics.
Taken alongside the euro zone figures published today, it looks as if a broad industrial slowdown is occurring across much of the EU.
A euro zone purchasing managers' index fell to a six-month low in August, data showed on Wednesday.
Britain's manufacturing sector has been expanding for just over a year but the pace has cooled steadily over the past four months.
The PMI's new orders index, a leading indicator of activity growth, fell particularly sharply to 52.0 in August from 58.5 in July. That was its lowest level since June 2009 and its biggest one-month fall in more than six years. There was a slight pick-up in export orders growth, indicating the bulk of the slowdown came from weaker domestic demand.
Some firms noted that subdued client confidence and uncertainty regarding public sector cuts had led to slower sales growth, the survey noted.
Britain's economy expanded by a surprisingly robust 1.2 percent in the second quarter but few believe this pace can be maintained in the second half of the year in the face of huge public spending cuts and renewed jitters in global financial markets.
The orders-to-inventory ratio, another forward-looking indicator, fell to its lowest in 17 months, suggesting activity is likely to slow further in the coming months.
There were mixed signals regarding the inflation outlook. Input price inflation eased to its weakest since January but output price inflation gathered pace to only a whisker below peaks scaled in mid-2008.
(Editing by Susan Fenton)