Britain's manufacturing sector shrank the fastest in three years in May, signalling the economy was still mired in recession and economists say this might brighten the prospect of the Bank of England giving a monetary shot in the arm to industry.

The Markit/CIPS PMI, which factors in output, orders and employment in the sector, was down to 45.9 last month from 50.2 in April; a number below 50 indicates contraction.

Weakness was widespread as both domestic and foreign demand dried up, showing that the euro zone crisis was not the sole factor responsible for the poor performance.

According to Rob Dobson, senior economist at Markit, the manufacturing sector "took a sudden sharp turn for the worse" in May.

The data showed manufacturing output down by 1 per cent in the second quarter, suggesting Britain would continue to be in recession for the immediate future at least, he added.

This comes as the first contraction in six months, and is much worse than what the economists had suspected, with an average forecast of a fall to 49.7. The survey is followed widely by policymakers, including those at the Bank of England.

Output, orders and employment were all down sharply, and the new orders measure crashed to 42, the lowest level since March 2009.

At the point, with the economy in the depths of recession, the BoE's Monetary Policy Committee (MPC) took the unprecedented step of cutting interest rates to the all-time low of 0.5 per cent and also introducing quantitative easing for the first time in its history.

According to Dobson, the MPC would consider giving industry a "monetary shot in the arm", likely involving an expansion of its £325 billion of it quantitative easing programme.

He said, perhaps the greatest concern was that this month's drop was not simply linked to the ongoing crisis of the euro zone, but to increasing weakness of the UK domestic market, with overall order books collapsing at a faster rate than export orders.

The manufacturing sector, accounting for 10 per cent of the British economy, shed jobs for the first time in five months in May, as manufacturers grew increasingly cautious about the outlook.

With manufacturers looking to replace orders from Europe with demand from elsewhere, there are reports of slower new work inflows from the US and Asia.

In a further sign of a worsening economic outlook, the British Chambers of Commerce lowered its 2012 GDP growth forecast to 0.1 per cent from 0.6 per cent.

Analysts said the decline showed a sharp fall in domestic orders, and even export orders were subdued, falling for a second month running in May.

Meanwhile, Bank of England deputy governor Charles Bean said in an interview on Thursday that the bank had scope to restart its asset purchase programme if things turned out for the worst in Europe.

In a Reuters poll this week economists said there was a 25 per cent chance of the BoE injecting more stimulus at its 6-7 June policy meeting, though only 2 out of 50 economists actually expected it to relaunch quantitative easing then.

Friday's survey, which pointed to staff layoffs at firms for the first time in 6 months, also marked a slowdown in firms' raw material costs and factory gate prices. These could also help to tip the balance towards higher quantitative easing analysts say.

According to Dobson, with price pressure easing further in May, there may be a window of opportunity if the BoE wanted to give industry a monetary shot in the arm.
(Also see: Britain slips into first double-dip recession since 1970s)