MANUFACTURING HERE deteriorated at a record pace last month as new orders, output and employment levels all fell due to a marked decline in demand, according to data released this morning.

The NCB Purchasing Managers Index (PMI), which measures manufacturing activity, fell to 39.7 in October, from 43.7 the previous month.

This is the lowest reading since the index began in May 1998 and is the 11th consecutive month the index has been below the 50 mark that separates growth from contraction.

Brian Devine, chief economist at NCB Stockbrokers, said while the October contraction was not a surprise, the magnitude of the drop was unexpected.

"The economy is set for a sharp contraction in the fourth quarter 2008 as both domestic and external demand weigh on GDP," he said.

A fall in demand was the main reason behind the fall in production, with the British market identified as particularly weak.

This resulted in the new orders index for October falling to a seasonally adjusted 37.5 from 43.4 in the previous month. This is a new record low and marks the eighth consecutive month of decline for new orders.

New export orders also contracted sharply last month, falling to 37.3 from 45 in September on the back of falling global demand.

The previous record low was reported in October 2001 when the new export orders index dipped to 40.3.

With new orders and exports under pressure, October was the 11th consecutive month in which more jobs were lost than created in the sector, with the index of manufacturing employment falling to 40.1.

Almost a third, or 30 per cent, of respondents said they cut jobs last month, in which the pace of jobs being lost in the sector was at a series high.

The index is compiled by Markit Economics from questionnaires sent to purchasing executives in 285 manufacturing companies.