Activity in the manufacturing sector fell for the fourth consecutive month in August, raising fears that the British economy is set to tip into recession.

The Chartered Institute of Purchasing and Supply/Markit purchasing managers’ index registered an activity reading of 45.9 last month, up slightly from a 10-year low of 44.1 in July.

However, August's reading shows that the manufacturing sector is still shrinking since any reading below 50 indicates that output is falling rather than rising.

Manufacturers reported falling volumes of new orders and output levels, while purchasing managers also reported job losses for the fifth month in a row.

Rob Dobson, senior economist at Markit Economics, said: “The downturn in manufacturing continued into August, as a lacklustre domestic market and high inflationary pressures eroded confidence at businesses and households alike."

Howard Archer, chief UK and European economist at Global Insight, added: “Ongoing weak manufacturing activity in August heightens belief that the UK economy will contract in the third quarter and is well on its way into recession.”

All eyes are now on PMI services figures published on Wednesday. The manufacturing sector accounts for about 15 per cent of the British economy, while the services sector accounts for about 60 per cent.

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