UK manufacturing ‘still in recession territory’

Posted on 3 Jan 2012

Although UK manufacturing performed better than expected, the sector contracted again in December according to the latest PMI figures.

Levels of production stabilised following recent contractions, December’s result of 49.6 coming in marginally under the 50-mark which signals growth.

The result was an increase on November’s figure of 47.7, largely due to growth in exports which grew at its fastest pace since April 2011.

New export orders rose for the first time in five months in December, reflecting increased levels of new work from clients in Germany, Eastern Europe and China. The overall rate of improvement was the fastest since April, but well below the record high reached one year ago.

“A solid upsurge in new export business countered some of the weakness in the domestic market,” said Rob Dobson, senior economist at Markit and author of the Markit/CIPS manufacturing PMI.

“However, over the fourth quarter as a whole, producers reported their worst performance since the second quarter of 2009,” said Mr Dobson. “Looking ahead, manufacturers are currently relying heavily on backlogs of work to prop up production. This is only a temporary fix, and the trend in overall order books needs to improve if the sector is to avoid a protracted period of lacklustre performance.

Levels of total new work fell for the sixth month in a row, with companies registering an increase in output linking it to higher foreign demand and efforts to clear backlogs of work.

Looking ahead, David Noble chief executive officer at the Chartered Institute of Purchasing & Supply (CIPS), commented that 2012 will bring both fresh and familiar challenges for the UK manufacturing sector.

“With the sector highly exposed to a shaky Eurozone, and reports of softening demand – ironing out economic problems in key export partners will be critical to how the sector performs,” said Mr Noble.

Ms Lee Hopley, chief economist at the manufacturers’ organisation EEF, described the data as a “something of a mixed bag” with several positive points to take away.

Some sectors within manufacturing are still growing relatively strongly, confirming the dual speed recovery seen in the official statistics in recent months. This growth in orders and production has been bolstered by an improvement in export demand, which we’ll need to see continue in the coming months to prop up growth across the wider economy.”