Hopes for recovery dashed

The total value of manufacturing output was down by 1.9% in August, falling a long way below the 0.4% increase that the market had anticipated.

Sterling fell in response to the data, falling nearly a cent against the US Dollar, to $1.5950, and half a cent against the euro, to €1.0840.

Duncan Higgins, senior analyst at Caxton FX, said: "The data will raise concerns that the economic recovery in the UK is still failing to take a firm hold and continues to lag behind over G20 nations.

"The negative manufacturing figure may also put a dampener on hopes that the UK economy returned to growth in the third quarter of 2009. A survey early last month predicted a 0.2% GDP figure for the July to September period, however the next estimate, due to be released sometime this week, may now feel the need to revise its position."

Graeme Allinson, head of manufacturing, Barclays Commercial Bank, said:"According to the majority of manufacturers I have spoken with recently, the recession has ended but they are still not witnessing significant growth. The 1.9% monthly decline in manufacturing between July and August is indicative of this position. Our experience tells us that the sector will continue to fluctuate within a limited range in the short-term, as manufacturing simply stabilises.

"The real test for UK manufacturers at present is 2010 budgets. Attention must be paid to investment in plant and machinery, in order to ensure facilities remain at prime operational capacity and are able to meet demand when it improves. Putting off investment will have diminishing returns as both growing maintenance costs and the risk of failing production lines become an increasing burden."