UK Manufacturing Output Collapses to a Three Year Low - Markit PMI

Manufacturing output in the UK contracted drastically in May and dropped to a three year low, according to a private industry survey, ending a five month run of growth in the sector and reflecting the country's slump back into recession.

The purchasing managers index (PMI), a survey compiled by financial researchers Markit and the Chartered Institute of Purchasing & Supply (CIPS), came in at 45.9 for May, much worse than expected and the second steepest decline in twenty years. Analysts were predicting a reading of 49.7.

A figure of 50 represents a neutral position. Anything over reflects growth, while under shows contraction.

New export orders collapsed to a figure of 45.2, falling at their fastest pace since March 2009.

"The harsh realities of the weak global economy and sluggish domestic demand are bearing down on UK manufacturing resulting in the lowest level of new orders for over three years," David Noble, Chief Executive Officer at the CIPS, said in a statement.

"This may prove to be a blip, but there is a long way to go before the manufacturing sector recovers fully from the global financial crisis. The sector could well become a drag on the UK economy as it seeks a return to better health."

Markit warned that the decline would have been even sharper had there not been a backlog of work

April's manufacturing PMI fell to 50.2 in April - a downwardly revised figure - from 51.9 the previous month as growth slowed.

Britain has tumbled into its second recession in four years, with the latest GDP figures showing consecutive quarterly contractions of -0.3 percent from the last quarter of 2011 to the first three months of 2012.

A sharp decline in construction sector output, which fell by -4.8 percent, helped drag the rest of the UK economy down.

To make matters worse for Britain's manufacturers, some of the country's biggest export markets are slowing.

The eurozone continues to be mired financial crisis, with some of the bigger economies such as Italy and Spain wallowing in recession.

Growth in India and China, two huge emerging economies, is slowing.

Chancellor George Osborne has said he wants to increase the value of UK exports to £1tn across by the end of the decade, but a global slowdown will complicate this ambition.

The recession in Britain looks set to continue into its third quarter as the Bank of England predicts the Queen's Diamond Jubilee to be a -0.5 percent drag on the economy.

"Further significant indicators are due to be released after the Diamond Jubilee bank holiday, including Construction and Services data, which will reveal the full extent of the health of the British economy," Phil Hoey, senior manager for Caxton FX, said.