Manufacturing output rise strengthens hope for Q1 growth

MANUFACTURING grew at its fastest pace for 10 months in March, latest figures show, giving rise to hopes of a return to grwoth in the first quarter.

The Markit/CIPS Purchasing Managers’ Index (PMI) for March showed manufacturing rose to 52.1 last month from 51.5 in February. Anything above 50 implies growth.

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said the results were encouraging and indicated the economy was set to return to growth in the first quarter.

“Official data for the manufacturing sector was already pointing to a reasonably good Q1 and these figures provide further evidence that this will be the case. Based upon the official data available so far and recent business surveys, we expect manufacturing output to have grown by 0.8% on the quarter. It looks as if GDP will have grown by around 0.3% in Q1, fully reversing the 2011 Q4 decline,” he said.
 
“On the whole the detail of the survey is reasonably encouraging. Sustained growth in new orders suggests that the recent upswing will have some legs, although output growth may slow somewhat in the coming months due to the recent build-up in stocks.”
 
He said the only fly in the ointment was on the costs and prices side. At the moment the rise in raw materials costs was being reflected in a squeeze on margins, he said.

“However, the longer that input prices continue to rise, the greater the chance that it will feed through to consumer prices. This in turn would reinforce the pressure on household finances and place a significant question mark over the prospects for a sustained recovery this year,” added Mr Goodwin.

Richard Halstead, Midlands region director at EEF, the manufacturers’ organisation, said the data was stronger than expected and indicated a bounce back in manufacturing since the turn of the year.

“Together with some strength in domestic orders (this) 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,” he said.  
 
“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.”