UK manufacturing growth eases triple-dip recession concerns

Saturday, 02 February 2013 10:55

By Ben Salisbury

Activity in the UK manufacturing sector continued to grow in January, providing welcome news for the economy.

However, the growth in Jnauary was slightly lower than December and below analysts expectations.

The data provides some hope that the UK economy could grow in the first quarter of 2013 and avoid a triple dip recession.

Philip Shaw, economist at Investec said: "Broadly the findings argue against the UK going into a triple-dip recession, and offer hope that a more sustainable recovery might be in train."

However, other economists were more cautious citing the fact that new orders hardly grew at all.

The Markit Purchasing managers index (PMI) was down slightly from December’s 15-month high of 51.2 to 50.8 but still above the level of 50.0 that represents growth.

The survey showed that total news orders for the sector continued to rise slightly but export business continued to fall for the 13th consecutive month. Both input costs to businesses and selling costs to customers rose.

Factory output grew at the fastest pace since September 2011.

Howard Archer, Chief UK & European Economist at IHS Global Insight said: "Manufacturing activity was a significant drag on GDP in the fourth quarter of 2012 (even though it only accounts for 10.5% of national output) but the survey suggests that it could manage to see modest expansion in the first quarter of 2013."

Markit said: “UK manufacturing production continued to expand at the start of 2013, following a further increase in new orders and ongoing efforts to clear backlogs of work.”

Rob Dobson, Senior Economist at survey compilers Markit said: “A second consecutive month of improving business conditions in the manufacturing sector is an encouraging start to 2013.”

However, the UK economy contracted by 0.3 per cent in the final quarter of 2012, according to the first official estimate published by the Office for National Statistics (ONS) last week.

This was partly due to weak PMI’s from both the construction and services sector in December. Next week will see these sectors of the economy reporting their January figures and it is hoped there will be a big improvement to help push the economy away from the possibility of a triple-dip recession.

Mr Dobson said: “However, with manufacturing only accounting for around 10% of the economy, the survey will do little to assuage fears of a triple-dip recession unless accompanied by an improvement in the services sector, which contracted at the fastest rate for two years in December.”

David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply welcomed the figures but said: “On the surface this is good news for manufacturing and should be welcomed. However underlying factors suggest deep rooted problems remain. Until these are resolved, the sector will continue to be pulled from pillar to post.

“Economic weakness in Europe is the primary issue affecting the industry, reflected in the continued scarcity of export orders during January.”

Howard Archer's  conclusion was: "The overall impression is that the manufacturing sector may be past the worst after a pretty torrid 2012, but it still has its work cut out to return to sustainable decent growth in the face of ongoing challenging domestic and international conditions."

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