By Suban Abdulla
LONDON (Reuters) - British factory output contracted in July at the fastest pace in seven months, hit by higher interest rates and fewer new orders, despite weakening price pressures, a survey showed on Tuesday.
The S&P Global/CIPS UK manufacturing Purchasing Managers' Index (PMI) fell to 45.3 in July from 46.5 in June, the lowest reading this year and the joint-weakest since May 2020, but above the 45.0 estimate in provisional PMI data.
July's reading marked the 12th month in a row the PMI has been below 50. A reading above 50 signals growth in activity.
The most recent official data showed factory output fell 1.2% in the year to the end of May.
Rob Dobson, a director at S&P Global (NYSE:SPGI) Market Intelligence, said the manufacturing downturn deepened in July, compounded by higher interest rates, customers with too much stock and weaker overseas demand.
However, more than half of manufacturers expect output to rise over the coming 12 months.
Demand continued to slow in July, with new domestic orders falling for the fourth month running and at the quickest rate since December. Overseas orders contracted at the steepest pace since November.
"Domestic and export demand are weakening, and backlogs of work are declining sharply, all of which likely presages further cutbacks to production, employment and purchasing in the months ahead," Dobson said.
Costs paid by manufacturers for materials and energy declined for the third consecutive month, while prices charged by factories were almost unchanged from June.
The Bank of England, which is expected to deliver its 14th interest rate hike on Thursday, is closely monitoring indicators of price pressures as it judges how many more rate hikes are needed to control British inflation, which was 7.9% in June, the highest among major advanced economies.
S&P Global's measure of future production improved slightly from the six-month low it hit in June, and employment contracted for the 10th month in a row.
A final reading for the much larger services sector is due on Thursday.