Factory slowdown leads Britain into recession

Manufacturers are dragging the economy back into recession after the biggest blow to the sector since 2009, an industry survey has warned.

The Chartered Institute of Purchasing (CIPS) and Supply/Markit activity index, where a score below 50 signals contraction, registered 49.6 last month, showing that the "march of the makers" promoted by Chancellor George Osborne, pictured, is still stuck in reverse gear.

While December's survey was stronger than City economists feared, even steeper falls in October and November left manufacturers suffering their worst quarter since April to June 2009.

Andrew Goodwin, an economic adviser to the Ernst & Young Item Club, warned: "It looks as if manufacturing was a sizeable drag on growth. We estimate that gross domestic product is likely to have contracted by about 0.2 per cent and expect the economy to fall into technical recession in the first quarter of this year."

But there were also glimmers of encouragement after easing raw materials costs and the fastest rise in new export orders since April. Manufacturers reported a pick-up in new orders from Germany, eastern Europe and China, although exports are well below the levels seen last year.

David Noble, the chief executive of the CIPS, said Europe remained key as it accounts for nearly half of the UK's export market. He said: "It is encouraging to see output remain steady after the declines of recent months, but with the sector highly exposed to a shaky eurozone and reports of softening demand, ironing out economic problems in key export partners will be critical to how the sector performs."

But manufacturers are eating into backlogs to maintain growth after the survey showed outstanding workloads falling for the 11th month in a row. Rob Dobson, of Markit, said the survey "maintains some scope for further stimulus from the Bank", warning: "The trend in overall order books needs to improve if the sector is to avoid a protracted period of lacklustre performance."