New orders fell at a rate broadly consistent with the series records seen towards the end of 2008. The principal factors underlying the weak performance of UK manufacturing remained the downshift in global aggregate demand and frozen credit markets. Domestic conditions were especially weak – largely as a result of the crises in the autos, construction, housing and retail sectors. Meanwhile, the economic difficulties being experienced by most of the UK’s major trading partners meant exporters were unable to benefit from a lower sterling exchange rate.

Manufacturers reported further job losses in January, with the rate of reduction in staffing levels hitting a new survey record and the sharpest cuts in employment generally centred on larger-sized enterprises. Headcount was reduced in line with lower production levels.

In addition, UK factories reported a series record decline in outstanding business levels. This, coupled with excess capacity, suggests that employment levels will continue to remain weak in the coming months.

January data pointed to a substantial scaling back in production volumes. Leaner order books, alongside efforts to reduce stock and maintain cash flow, contributed to the latest reduction in output.

Purchasing activity, holdings of raw materials and stocks of finished goods were also reduced as a result of demand, cost and cash flow considerations.

After falling slightly for the first time in almost three-and- a-half years in December, factory gate prices rose marginally at the start of 2009 – mainly reflecting exchange rate factors. The higher relative cost of some imported raw materials was passed on to clients, while the prices of goods sold overseas increased in sterling terms. Meanwhile, average input costs fell for the third month running, but at the least marked extent during this period.

Roy Ayliffe, Director of Professional Practice at the Chartered Institute of Purchasing & Supply, said:“Purchasing managers in the UK manufacturing sector reported an anemic opening to 2009 with record falls in employment as factory jobs were cut at an astonishing rate of 30,000 per month.

“While the weaker sterling exchange rate acted as a precarious crutch to prop up new export orders in January, benefits were far offset by the downturn in global demand. On the home front, manufacturers continued to wrestle with floundering domestic demand as three fifths of firms reported a decline in new orders. Unsurprisingly, the intermediate goods sector, which supplies the ailing autos and construction industries, was worst hit.”

Rob Dobson, Senior Economist at Markit Economics said: “The latest PMI figures highlight the appalling market conditions that UK manufacturers are currently facing. Although the level of the PMI Output Index rose for the second month running in January, it was still consistent with production contracting by around 6% year-on-year. New orders are declining at a near survey record rate, while the global downturn is making life tough for exporters – despite this being partly mitigated by a weaker sterling exchange rate. The manufacturing labour market is still exceptionally weak, with employment falling at a rate of around 30,000 a month during Q4 2008 and accelerating in January.”

The CIPS/Markit UK Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 600 industrial companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on the regional, and industry contribution to GDP.