Firms feel effects of economic slowdown

The Chartered Institute of Purchasing and Supply Managers (CIPS) said production fell for the fifth consecutive month in July.

Orders also fell, with overseas and domestic demand dropping and cheap imports flooding into the UK as a result of the weak euro.

CIPS' Purchasing Managers Index, a barometer of manufacturing strength, fell to 47 in July, compared with 47.3 in June. On the CIPS scale, a figure of 50 or above indicates growth, while a figure below 50 represents a contraction.

David Page, economist at City stockbroker Investec, said the manufacturing sector continued to look fairly gloomy.

"It is the same story, to an extent. Strong sterling is having an effect, but there is also a weakness in global demand for industrial products," he said.

CIPS' survey comes as the Bank of England's Monetary Policy Committee meets to discuss whether to lower interest rates this month.

Its decision will be announced today, but it is likely rates will be left at 5.25 per cent.

Despite problems for the manufacturing sector, the high street continues to flourish.

Data from the Confederation of British Industry (CBI) showed retail sales volumes remained robust, with stores reporting the fastest pick-up in the rate of growth since May last year.

Sudhir Junankar, the CBI's associate director of economic analysis, said: "Although retailers enjoyed an unexpected pick-up in sales in July, they do expect sales growth to ease during August."

The CBI's survey showed 57 per cent of retailers' sales were up in July, compared with a year ago.

It added that the underlying trend, on a three-month moving average, rose to the highest level since February last year.

The largest growth in sales, compared with a year earlier, was reported by footwear and leather shops, and grocers and household goods stores, while chemists, booksellers and DIY stores also saw big increases.

Off-licences reported sales growth for the first time since last November.