Manufacturing output accelerates

2 February 2010

Manufacturing output in the UK surged ahead at its fastest rate for 15 years last month, new figures have indicated.

According to the Chartered Institute of Purchasing and Supply managers' index, activity in the sector reached a mark of 56.7 in January, up from 54.6 in December.

The CIPS index is produced after assessing the reports of 600 purchasing managers on production levels and new orders. Any figure above 50 denotes growth, while any below indicates contraction.

The buoyancy of the sector was fuelled by increased demand from both the domestic market and abroad.

New orders raced to 60.4, the fastest pace of growth in six years. Export orders showed an improvement not seen since the index began in 1996.

The sharp strengthening of business activity could mean that the initial estimate of GDP growth of 0.1 per cent for the final quarter of 2009 may yet be revised upwards.

The CIPS index also revealed that jobs in the manufacturing sector were increasing for the first time in two years.

Rob Dobson, senior economist at Markit, the group that helps to compile the index, said: "January data point to a robust start to 2010 for the UK manufacturing sector. The headline PMI hit a 15-year high as growth of new orders and production accelerated and employment rose for the first time since April 2008.

"The main driver of growth was a surge in new export orders, as improving global market conditions and the ongoing weakness of sterling led to the sharpest rise in foreign demand recorded in at least 14 years.

"The survey therefore raises hopes that the sluggish recovery from recession signalled by GDP data in the final quarter of last year will have gained momentum as we move into 2010."

Analysts, though, counselled caution over the data.

Howard Archer, economist at HIS Global Insight, commented: "The survey provides a very welcome, decent upside surprise - which is particularly encouraging following the disappointing fourth quarter GDP data.

"However, it needs to be borne in mind that the purchasing managers' surveys have recently been significantly stronger than the hard data - for both manufacturing and service sector activity."

Stephen Lewis, from Monument Securities, added: "The PMI was stronger than expected. I don't think this necessarily means there is an improvement in underlying conditions. It may simply mean that those who are responding feel better about the conditions than they did."