Surprising 10-month high in manufacturing activity

Posted on 2 Apr 2012

Manufacturing activity in the UK grew at the fastest rate for 10 months in March, owing to a boost in new orders and decreasing the chance of another recession.

The Markit / Chartered Institute of Purchasing and Supply (CIPS) Manufacturing Purchasing Managers’ Index (PMI) rose to 52.1 in March, even after predictions of 51.5 for the same month. Analysts’ forecasts for a drop to 50.7 in March were proved incorrect, while they hit the highest level since May last year.

The survey indicated manufacturing output growth of 0.3% in the first quarter of 2012 after the previous 0.7% decline, which was a factor in the overall contraction of the economy in the last quarter of 2011, Markit economist Rob Dobson said.

“This is obviously nowhere near a strong pace, but it is at least sufficient to prevent the sector from remaining a drag on broader GDP growth,” said Mr Dobson.

He went on to say: “Inflows of domestic and export orders also showed some improvement in March, but exporters have to tap markets further afield as conditions in the euro zone remain lethargic.”

The conditions in the manufacturing sector remain difficult, even though that March ended a positive start to the year. Output and new orders expanded throughout the period.

There are still certain pressures on the manufacturing sector, however. The increase in output was supported by a depletion in backlogs of work and inventory building. Cost inflationary pressures are also turning the screws on manufacturers, due to high commodity prices – particularly oil and metals.

David Noble, chief executive officer at CIPS commented: “The continued growth in manufacturing over the past few month’s points towards a more sustained period of improvement in the sector, and less chance of manufacturing acting as a drag on the overall economy.”

Ms Lee Hopley, chief economist at EEF said: “The stronger than expected data shows a bounce back in manufacturing since the turn of the year and, together with some strength in domestic orders should calm fears that the UK is in the midst of a technical recession.  Despite further evidence of weakness in eurozone markets UK manufacturers are looking beyond this and securing orders growth in non-traditional emerging markets.”

“However, managing high and volatile raw materials prices has been a particular challenge through this recovery and, a return of accelerating input price inflation is a potential cause for concern,” she added.