LONDON (MktNews) - The US economic slowdown caused an abrupt reversal in UK manufacturing activity in March, as overseas demand for new orders fell sharply, according to a survey of purchasing managers by the Chartered Institute of Purchasing and Supply published Monday.
The purchasing managers index in March fell to 49.7 from 52.2 in February when firms reported a sustained rise in output and orders.
This was the first time that activity has fallen below the boom-or-bust level since October last year. The March level was also the lowest since April 1999.
CIPS said the intermediate goods sector was the worst performing of the manufacturing economy, where output fell sharply amid a fall in order book volumes. Weaker output in March also reflected widespread reports that firms had cleared existing backlogs.
It said firms reported that demand had been hit both at home and abroad and that the downturn in semi-conductors had in particular hit order books.
"Overall, firms reported that contraction in export markets reflected global economic slowdown, and pointed to the knock-on effects that the US downturn has had, not only on orders to the US but also to other countries affected by lower US demand," CIPS said.
The seasonally adjusted new orders index fell to 49.9 in March from 54.7 in February, the first time the index has fallen since February 1999.
The export orders index in March fell to a seasonally 48.9 from 51.1 in February. "It was widely reported that weaker demand from overseas markets reflected the slower growth seen in the global economy in recent months," CIPS said.
Purchasing activity in March fell sharply as firms ran down stockpiles and tried to improve efficiency. The index for quantity of purchases fell to 46.7 in March from 52.0 in February.
Backlogs of work continued to fall in March, with the index falling to a seasonally adjusted 44.9 from 43.1 in February. The stocks of finished goods index fell to a seasonally adjusted 47.4 in March from 48.3 in February as many firms reported implementing tighter stock controls.
Input prices in March rose at their slowest pace in 20 months, with the index recording a seasonally adjusted 52.0, compared with 54.8 in February, as demand weakened for a broad range of inputs, particularly electronic components. However, firms continued to report that instability in the oil market had led to rise in the prices of many oil and petro-chemical related products.
Output prices fell in March for the first time in 17 months as strong competition offset the rise in consumer goods caused by the foot-and-mouth disease. The index posted a fall of 49.4 in March from 50.1 in February.
Efforts to keep costs down were reflected in the latest employment data. The employment index remained unchanged at 48.5 in March. A number of firms reported forced redundancies as a result of weaker demand.