LONDON, Oct 1 (Reuters) - Activity in the British manufacturing sector shrank more than expected in September as export orders fell and costs soared, a survey showed, raising the risk that the economy will falter after a rebound over the past few months.
The Bank of England also released the following data for consumer credit and M4 money supply on Monday.
Following are highlights of the BoE and Markit/CIPS manufacturing PMI data, and economists' reaction.
KEY FIGURES FROM MARKIT/CIPS PMI SURVEY
(Previously announced data in brackets)
SEPT AUG JULY F'CAST Manufacturing headline index 48.4 49.6 (49.5) 45.1 49.0 New orders index 50.6 50.2 41.9
- New orders index highest since March
NUMBER OF MORTGAGE APPROVALS AUG JULY FORECAST
47,665 47,556 (47,312) 49,000
LENDING TO INDIVIDUALS (CHANGE IN BLN STG):
AUG JULY FORECAST Total net lending -0.4 0.6 (0.9) n/f
Secured on dwellings -0.3 0.9 (1.1) 0.5
Consumer credit -0.1 -0.2 (-0.2) 0.1
- of which credit card UNCH -0.1 (-0.1) n/f
- Steepest fall in total net lending since July 2010
- Sharpest fall in mortgage lending since Dec 2010
- Biggest annual increase in M4 excluding intermediate other financial companies since Q1 2009
TOM VOSA, NATIONAL AUSTRALIA BANK
"Overall, the transmission mechanism is still broken. You can understand why (the BoE) are pinning such hopes on the Funding for Lending Scheme in order to try and get credit out to the economy, but the available evidence is that certainly in August it hasn't had much of an impact.
"In reality if banks are still labouring under capital charges and bad debts, it's very difficult for them to increase lending and we still think that M4 will be contracting for the rest of this year."
GEORGE BUCKLEY, DEUTSCHE BANK
"The PMI headline is a bit weaker but the encouraging news is that at least orders have held up. If orders are a leading indicator then that's encouraging for the future in terms of a recovery in output."
"The lending numbers are pretty disappointing. We're going to see weaker lending and approvals for a long period of time. What's happened is people can no longer afford to save for deposits and they have to therefore save for longer, which means that they're out of action for a longer period of time. We should expect this to remain the case for some time."
PETER DIXON, COMMERZBANK
"The PMI numbers were a little disappointing I think but I'm not going to get too hung up as they were within ballpark estimates. It is slightly worrying that if you look at Q2 and Q3, Q3 was lower than Q2 when we're meant to be getting a rebound."
"My sense would be that, going forward, weakness in the euro zone means UK manufacturing PMI will find it difficult to break through the 50 barrier, which is a sign of ongoing weakness."
"Mortgage approvals were a little lower than anticipated but not hugely.
"The general view is that households are effectively deleveraging as you can see from the credit lending data so it's probably not a surprise that markets will remain weaker for some time to come. It's clearly case that it's the same old story we've been hearing for some time."
ROSS WALKER, RBS
"This (PMI) print and the previous month's numbers are providing a cleaner read although we are in contractionary territory its clearly a lacklustre result."
"There's not a dramatic change in the month but if you look at the underlying trend over the past year or so it seems to be downward."
"The main conclusion from what we've seen in recent months is the underlying economy still looks fragile."
"We're going to see a bounce in Q3 GDP but if we look toward 2013 the numbers are not particularly encouraging."
DAVID TINSLEY, BNP PARIBAS
"I'm not surprised that the index fell back on the PMI in September, because it had bounced quite a lot in August. The big picture is that manufacturing is still declining in the UK. What would be a surprise would be if the UK manufacturing data was expanding. The global economy is still struggling - particularly in the euro zone, and so the fact that it's only just contracting here is quite a good thing."
"The consumer credit was a bit disappointing, but it's not the most important of scores. The consumer credit survey numbers were not reflected in this data, but it's early days. It'll likely pick up as the housing market improves. The Olympics distorted the numbers somewhat as people were not out looking for houses."
CHRIS WILLIAMSON, MARKIT:
"The UK manufacturing sector has lost momentum again at the end of the third quarter, with firms suffering the double blow of falling output and rising costs.
"After an initial rebound since activity was hit by the extra holidays for the Queen's Diamond Jubilee in June, a downward trend in the rate of output growth is again evident.
"The survey data are consistent with manufacturing output falling sharply, at a quarterly rate in excess of 1 percent in September. At that pace, the sector could dampen economic growth severely and keep the economy in recession."
ANNALISA PIAZZA, NEWEDGE STRATEGY
On manufacturing PMI: "The outcome is weaker than anticipated and it suggests that the UK economy remains very fragile in Q3. The improvement seen in August failed to consolidate as the country still suffers from spill-over effects from the euro area. Exports remain extremely sluggish, affecting the manufacturing sector.
"Looking at the average of Q3 PMI data, the picture is rather depressing. Indeed, the index is nearly 0.5 point lower than in Q2, when the UK manufacturing sector was badly affected by the Jubilee long weekend."
"We rule out that the sector will return on a sustainable upward trend anytime soon."
(Reporting by UK economics team)
Keywords: BRITAIN ECONOMY/