British factories in August suffered their weakest month since early in the COVID-19 crisis, with orders shrinking dramatically due to the rise in interest rates at home and abroad, a survey showed on Friday.
The S&P Global/CIPS UK manufacturing Purchasing Managers' Index (PMI) dropped for a sixth month in a row, falling to 43.0 from 45.3 in July. It was the lowest reading in 39 months, although it was slightly above the 42.5 estimate in provisional August data.
It was the 13th month in a row the PMI has been below the 50 mark denoting growth in activity.
Rob Dobson, director at S&P Global Market Intelligence, said output and new orders in the factory sector contracted at rates rarely seen outside of crisis periods and companies were being forced into defensive action.
"Purchasing activity, inventory holdings and staffing levels were all cut back in August as manufacturers strived to control costs, protect margins and operate in a much leaner and efficient manner," he said.
However, the slowdown in domestic demand and export orders was easing inflation pressures. Input costs fell at the quickest pace since January, potentially easing goods price inflation in the coming months.
"The survey data therefore suggest policymakers will become increasingly focused on concerns over the economy's health as they mull the need for further rate hikes," Dobson said.
With inflation still close to 7% in July, the Bank of England looks set to raise rates for the 15th time in a row on Sept. 21, even with the economy showing signs of a slowdown which some economists say will turn into a recession soon.
A final reading for Britain's larger services sector is due on Tuesday next week. The preliminary version of the services PMI dropped back to January's level which was a two-year low.
(Reporting by William Schomberg; Editing by Hugh Lawson)