By Marcus Leach

The Markit/Cips manufacturing purchasing managers' index (PMI) fell to 49 last month, resulting in a 26-month low in August.

The survey shows that output, new orders and employment are all down, with a reading of below fifty signalling a contraction in the sector.

Alarmingly new export business, which has driven the recent manufacturing recovery, fell at its fastest rate since May 2009.

To compound the figures August also saw the sharpest fall in new orders in manufacturing in over two and a half years.

"The second half of 2011 has so far seen the UK manufacturing sector, once the pivotal cog in the economic recovery, switch into reverse gear," said Rob Dobson, senior economist at Markit, who produce the survey on behalf of the Chartered Institute of Purchasing and Supply.

"The sudden and substantial drop in new export orders is particularly worrisome, with UK manufacturers hit by rising global economic uncertainty, just as austerity measures are ramping up at home.

"As consumer and business confidence are slumping both at home and abroad, it is hard to see where any near-term improvement in demand will spring from."

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