By William Schomberg
LONDON (Reuters) - British factories had their weakest month in nearly three years in February, a survey showed on Tuesday, raising a warning signal that the country's recovery from the financial crisis could be slowing further.
With growing uncertainty about the health of the global economy and the approach of Britain's European Union membership referendum, the Markit/CIPS manufacturing Purchasing Managers' Index (PMI) fell sharply to 50.8, below all the forecasts in a Reuters poll, from 52.9 in January. It was just above the reading of 50 delineating expansion from contraction.
The survey showed demand at home slowed while export orders fell, a double whammy for a sector which accounts for about 10 percent of Britain's economic output.
It underscored why the Bank of England has said it is ready to pump more stimulus into the economy if needed.
"The near-stagnation of manufacturing highlights the ongoing fragility of the economic recovery at the start of the year and provides further cover for the Bank of England's increasingly dovish stance," Rob Dobson, a senior economist at Markit, said.
"The breadth of the slowdown is especially worrisome."
New orders in February were their weakest since the turnaround began in 2013. Consumer and investment goods orders bore the brunt of slower growth in demand at home and a further fall in orders from abroad, Markit said.
BREXIT
Kallum Pickering, an economist with Berenberg, said nervousness about Britain's June 23 EU membership referendum suggested a difficult few months ahead for manufacturers.
"As long as the UK votes to stay in the EU, domestic demand will likely pick up again thereafter. If the UK votes to eject itself from its biggest market, things may get much rougher," he said in an email to clients.
The survey was mostly conducted before a latest sharp fall in value of sterling in late February which would make British goods cheaper abroad.
The manufacturing sector cut jobs for a second month in a row although the decline was mild. Companies said they cut the prices of their goods for the sixth month in a row but the fall was slightly less marked than in January.
Manufacturing weighed on Britain's overall economic growth at the end of last year, leaving the country's much bigger services sector as the sole driver of the recovery.
Allan Monks, an economist with JPMorgan (N:JPM), said Thursday's survey of the services sector would help give a better sense of how the economy was faring.
"In recent years the services sector has remained resilient in the face of manufacturing weakness, reflecting in turn the strength of domestic relative to global demand," he said in a note.
A Reuters poll of 29 economists sees the services PMI falling to 55.1 compared with 55.6 a month earlier.