UK MANUFACTURING is dragging down any hopes of an economic recovery as it struggles with weak exports, a report has claimed.

The industry remains dependant on domestic demand, with the strong pound acting as a barrier across eurozone markets.

The findings, announced in a Markit/CIPS purchasing managers’ index survey (PMI), also said any expansion in production was due to consumer goods, with new orders slowing to a ten-month low.

The report delivered a reading of 51.9 last month, which was only slightly higher than the 26-month low of 51.4 recorded in June.

However, the figure is above the 50 used to separate growth from contraction.

Rob Dobson, Markit senior economist, warned the sector’s struggles will concern the Bank of England, and its potential rise of interest rates, adding the situation means the UK is again reliant upon the services industry.

He said: “Although an uptick in the headline PMI breaks the decelerating trend in UK manufacturing, growth remains near-stagnant.

“With the sterling-euro exchange rate still sapping export demand and constraining growth of total order inflows, it seems we will again look to the service sector to sustain any semblance of reasonable economic growth in the third quarter.

“Scratching beneath the surface, manufacturing numbers show the sector is still reliant on the domestic market to drive overall demand, in particular the consumer sector.

“The struggling manufacturing sector, and the impact of the strong pound on export performance, will be a worry for the Bank.

“However, with the goods-producing sector accounting for only one tenth of the economy, these woes may take second place to the health of the far larger services sector in determining the timing of the first interest rate hike.”

The report added employment in the manufacturing industry increased for the 27th successive month in July, but remained below the average for the current sequence of rising headcounts.

Where numbers did go up, it said that was mainly due to the clearance of work.

David Noble, CIPS group chief executive, said: “Employment continued to rise, which enabled backlogs and current contracts to make significant headway.

“However, the sector must be wondering how the absence of a significant numbers of new orders will affect manufacturing performance in the coming months.”