KUALA LUMPUR, Nov 1 — Manufacturing in Malaysia suffered a sharp drop in output in October while business confidence in the sector also took a severe beating at the start of the fourth quarter this year.

The latest report from the Nikkei Malaysia Manufacturing Purchasing Managers Index compiled by industry intelligence firm IHS Markit released today also showed that companies have cut jobs in manufacturing, the most in four months.

Overall business conditions deteriorated at the "sharpest rate" since July following a broad stagnation the previous month.

The report said the slowdown was due to lower demand, the sharpest in three months.

Production rose, but just at a fractional pace, the report added.

"In response to subdued demand conditions and spare operating capacity, firms decreased their payroll numbers at the fastest pace since August 2016. Firms also cut purchasing activity whilst, on the price front, they continued to face sharp inflationary pressures,” the report said.

The report added that the manufacturing sector also suffered because it could not pass the higher cost to "price-sensitive” consumers.

Due to weak and underlying demand conditions, manufacturers have also reduced their input buying in October.

Companies were also discouraged from adding to their pre-production inventories.

IHS Markit economist Aashna Dodhia commented that while the sector had a bumpy ride in October, pressure from inflation had eased up compared to the previous month and manufacturing is expected to improve.

"In response to weakening business conditions, the manufacturing sector decreased payroll numbers for the first time in four months, and at the greatest extent since August 2016. At the same time, business confidence towards the 12-month outlook for output eased to the weakest since May.

"Although strong, there was a silver lining for manufacturing firms as inflationary pressures eased from the prior month," she said in an accompanying statement to the report.