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U.K. manufacturing contraction worsens in October

Nigel Taylor smothes out a bell made for Prince Charles for the Queen's diamond jubilee at the Whitechapel Bell Foundry on February 29, 2012.

Jim Ross/The Globe and Mail

The downturn in Britain's manufacturing sector worsened in October as companies received fewer orders and costs rose at a faster pace, a survey showed on Thursday, reviving worries about the country's fragile recovery.

The CIPS/Markit Purchasing Managers' Index (PMI) for the manufacturing sector fell to 47.5 from a downwardly revised 48.1 in September, dipping further below the 50 mark which separates growth from contraction.

The figure is also below economists' forecasts of 48.0 and may throw the debate about the chances of more stimulus from the Bank of England open again.

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Several economists changed their view following strong economic growth of 1 per cent in the third quarter, expecting no extension of the BoE's government bond purchases at next week's policy meeting.

But manufacturers cut production for a fourth month in a row and new orders fell at a faster rate than in September as export demand dwindled, the PMI data showed.

"While the road to an export-led recovery is still blocked by the ongoing difficulties in the euro zone, it is concerning to hear further reports of the global slowdown hurting trade with other regions such as Asia," Markit economist Rob Dobson said.

The index for new orders fell to 47.7 in October from 49.9 in the previous month.

However, Markit's Dobson also noted some positive signs.

"The consumer goods sector bounced back robustly in October to really buck the wider trend," he said. "This chimes with ongoing signs that domestic retail sales volumes are holding up reasonably well."

Britain's manufacturing sector grew by 1.0 per cent between July and September as the industry made up for production lost in June due to an extra public holiday.

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But while the country exited recession over the third quarter, most economists expect a feeble recovery from here on at best as the turmoil in the euro zone continues to weigh and the slowdown in key emerging economies poses fresh dangers.

Business lobby CBI raised its forecast slightly for this year and next on Thursday after the bounce in the third quarter, predicting a stagnation in 2012 and 1.4 per cent growth in 2013.

Bank policy makers have cautioned that the strong growth from the third quarter was unlikely to be repeated.

In a worrying sign for the central bankers, companies' costs rose at the fastest pace since March. Firms also increased their prices so at a much slower rate.

The central bank has been hoping that falling inflation will allow British consumers to spend more and support the economy.

But recent energy and food price increases have stoked fears that the inflation rate – currently at 2.2 per cent – will not fall further towards the central bank's 2 per cent target.

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