(RTTNews) - The UK manufacturing sector continued its downturn and stood near a nine-and-a-half-year low as domestic and foreign demand contracted in August, results of a survey showed Monday.

The latest monthly survey from the Chartered Institute of Purchasing & Supply, or CIPS and Markit Economics showed that the Purchasing Managers’ Index for the manufacturing sector rose to 45.9 in August from 44.1 in July. Though the indicator climbed from a nine-and-a half year low reported in July, the PMI stood below the neutral level of 50.

A PMI reading below 50 indicates contraction in the manufacturing sector, while a level above 50 suggests expansion.

Roy Ayliffe, Director of Professional Practice at CIPS said, “Purchasing managers reported that the weak domestic market and inflationary rises added further pressures. In particular, costs continued to surge on the back of high energy, food and fuel prices while the weak sterling also pushed up the cost of imports.”

The downturn was broad based in the manufacturing sector. There was substantial decrease in new order volumes, the survey showed. Domestic demand had weakened for manufactured consumption goods and products used in the construction activity. The UK exporters benefited from the weakness of sterling and the new export orders index rose to 46.4 from July’s 46.3. But, the continuing downturn in the global economy continues to impact export orders.

Stocks of purchases and finished goods both decreased, while a number of firms reduced its non-essential expenditure resulting in a decline in purchasing activity.

The employment index stood at 43.8, which was the second lowest since late 2001. Job cuts were widespread, with nearly one-in-five companies reporting employment decline for August. The output prices index registered a reading of 64.5, indicating a noticeable increase in cost inflationary pressures during mid-2008.

Commenting on the PMI data, Raymond Van der Putten, an economist at BNP Paribas said given the weak business conditions, manufacturers are unlikely to pass their higher costs and hence, profit margins could be squeezed further.

The Bank of England said in a report that the number of loans approved for house purchases in the UK fell to 33,000 in July, the lowest since the series started in 1993.

The Monetary Policy Committee of the Bank of England is expected to hold key interest rate at 5% in its meeting on August 4 after the economy stagnated in the second quarter. Economists expect the central bank to ease its monetary stance in the near term, possibly in November.

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