Manufacturing growth and costs rise
Monday 02 April 2012
Better than expected growth in the manufacturing sector in March was today overshadowed by one of the steepest rises in input prices for 20 years.
The Markit/CIPS survey, where a reading above 50 represents growth, hit a 10-month high of 52.1, which was higher than February's score and exceeded City expectations of 50.8, although the growth was partly driven by companies building up levels of inventories at record rates.
While the survey indicates that the sector returned to growth in the first quarter of 2012, it also showed that average prices rose at their fastest rate since last August in "a marked turnaround" from the sharp declines just two months ago.
The extent of the pick-up in costs since the start of 2012, driven by rising oil and metal prices, is among the steepest in the survey's 20-year history and is already starting to pass its way through to customers, with selling prices up at their fastest pace for half a year.
Rob Dobson, senior economist at Markit, said: "A major cause of concern among manufacturers is the recent upsurge in input prices, which mainly reflects high oil prices."
He added that strong competition meant firms were struggling to pass on the full extent of the cost hikes but warned "margins can only be squeezed so much until producers need to raise prices".
The stronger than expected performance - the fourth month of growth in a row - will help ease fears the UK economy is slipping back into recession after a bigger than previously thought 0.3% decline in gross domestic product - a broad measure of output - in the final quarter of 2011.
Economists at Markit think that the sector has grown by about 0.3% in the first quarter of 2012.
Domestic demand increased in March and companies saw growth in Africa, Asia and Japan, which helped offset weakness caused by the eurozone debt crisis.
Despite the growth in new orders, the survey said conditions in the sector remained "tough overall".
The sector's growth was partly driven by manufacturers "burning through backlogs of orders" and building up stockpiles of finished products at record levels, particularly for consumer goods products.
CIPS chief executive David Noble said the rise in inventories could signify that demand is expected to pick up in the coming months.
But Samuel Tombs, an analyst at Capital Economics, said: "Given that a pick-up in price pressures appeared to contribute to the manufacturing slowdown in the second half of last year, it seems as if the industrial recovery is still built on shaky foundations."
- 1 Renee Zellweger on plastic surgery reports: 'I'm living a fulfilling life and I'm thrilled that perhaps it shows'
- 2 Disney announces new female-led film Moana
- 3 Banksy not arrested: Internet duped by fake report claiming artist's identity revealed
- 4 Australian café owner sparks debate after saying 'No' to having unruly children on premises
- 5 Video: Boxer Vido Loncar brutally assaults referee following defeat
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Residents should throw a street party and mix with immigrant neighbours, councils told
Russell Brand threatened with arrest after filming outside Fox News headquarters
London bus driver 'kicks gay couple off for kissing'
Support for EU membership 'at highest level since 1991 with most Brits wanting to stay in'
iJobs Money & Business
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...
£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...
£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...