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Business News

Manufacturing bounces back

The manufacturing sector recorded its biggest rise in production for more than a year as it bounced back from the disruption caused by bank holidays around the royal wedding and Easter, official figures revealed today.

Manufacturing output rose by 1.8% between April and May, more than making up for a drop of 1.6% the previous month, the Office for National Statistics said.

The sector may have shown its biggest monthly rise since March last year, but economists warned it has still "shifted down a gear recently", with output for manufacturing in the past three months down on the previous quarter.

The overall index of production rose 0.9% despite a sharp drop in oil and gas extraction.

This helped to offset some of the 1.7% fall in April. But overall industrial production in the three months to the end of May is down by 1.5% compared to the previous three months.

Oil and gas extraction fell 5.7% month-on-month after maintenance work reduced production levels.

The manufacturing sector, which saw output rise for the 16th month in a row, benefited as Japan started to recover from the impact of the tsunami. A number of car manufacturers said that sales levels were getting back to normal after their supply chains were disrupted by the disaster, the ONS said.

Howard Archer, chief economist at IHS Global Insight, said: "The decent bounce-back in manufacturing output in May following April's contraction eases some of the concerns that the sector is coming rapidly off the boil.

"Nevertheless, it is still apparent that manufacturing sector activity has shifted down a gear overall recently.

"The underlying impression remains that manufacturers are now finding life more challenging as stock rebuilding wanes and tighter fiscal policy weighs down on domestic demand."

The latest Markit/CIPS manufacturing survey for June has also indicated another weak performance, with growth in activity decreasing to its slowest level for 22 months. New orders fell for their second successive month, sparking fears that the slowdown in growth will continue

Chris Williamson, chief economist at Markit, described today's survey as disappointing "given that manufacturing is supposed to be driving the UK recovery".

He expects GDP to rise by between 0.2% and 0.3% in the second quarter of 2011, meaning that it is "increasingly implausible" that the Government meets its targets for growth and deficit reduction.