Activity boost for manufacturing sector

THE manufacturing sector has been buoyed by encouraging data for factory activity in December, which grew at its fastest pace since September 2011.

The Markit/CIPS Manufacturing Purchasing Managers’ Index (PMI) rose to a 15-month high of 51.4 in December from an upwardly revised 49.2 in November – a far stronger increase than any predicted.

The economy is forecast to shrink 0.1% in the last three months of 2012, but stronger-than-expected official services output data for October, released just before Christmas, raised the prospect that the economy may avoid contraction.

The index’s upturn takes it above the 50-mark that separates growth from contraction for the first time since March, and breaks with poor official data, which showed a 1.3% fall in factory output for October.

“UK manufacturing exited 2012 on a positive note, with December’s PMI data signalling a reassuringly solid return to growth for the sector,” said Rob Dobson, the Markit economist who compiled the survey.

“The domestic market remained the main spur for growth … in December, although there are also signs that global trade flows are stabilising as China and the US strengthen and the downturn in the eurozone eases,” he added.

Manufacturing makes up just 10% of output, so construction and services PMIs due on Thursday and Friday will give a stronger guide to the health of the economy as a whole, which is only forecast to grow slowly in 2013.

Nonetheless, the output component of the manufacturing PMI rose to 54.0 in December, its highest level since April 2011, from 50.5 in November, though Markit said the sector still contracted for the fourth quarter overall.

New orders rose at the fastest rate since March 2011, driven by domestic demand, while export orders fell, albeit at the slowest pace since September.

Commenting on the positive figures David Ost, North West Region Director at EEF, the manufacturers’ organisation, said: “The rise in output and orders at the end of last year is a positive signal that the sector can continue to recover in the year ahead, but the strength of that recovery will, as ever, depend on what happens in other parts of the world.

“2013 is likely to remain challenging and exporters, in particular, will be hoping to see stability in the eurozone and signs that demand will continue to hold up in the US and emerging economies in the coming months.”