Manufacturing returns to growth


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The Independent Online

The manufacturing sector returned to modest growth in September, figures revealed today, but fears lingered over its health.

Manufacturing output increased by 0.2% between August and September, the Office for National Statistics (ONS) said, after declining 0.3% in the previous month. It is the first time the sector has seen growth since May.

But the overall index of production, which also includes mining and the oil and gas industries, was flat.

And economists said the manufacturing sector was still in bad shape after being hit by weak demand amid the eurozone debt crisis.

Chris Williamson, chief economist at Markit, said: "This is a disappointing rate of growth for a sector that was hoped to lead the UK's economic recovery, and growth looks set to weaken further in the final quarter of the year."

With the global economy growing at its slowest rate since the recovery began in 2009, there is "a clear risk" of the sector slipping back into recession if growth fails to revive in key export markets soon, he added.

The overall industrial production figures were weaker than expectations for a 0.1% increase.

Today's figures mean that the index of production rose 0.4% in the third quarter of 2011, compared with the previous quarter, while the manufacturing sector rose just 0.2%.

Lee Hopley, chief economist at manufacturers' organisation EEF, called on the Government to "pull every lever at its disposal" in the autumn statement later this month to help companies invest and get its growth agenda back on track.

Industry surveys have suggested that the manufacturing sector's performance has worsened recently, fuelling fears the UK could slide back into recession.

The Markit/CIPS manufacturing survey reading for October "dropped like a stone" to a 28-month low of 47.4, where a score below 50 indicates contraction.

And new orders declined at their quickest pace since March 2009, signalling more pain to come.

The manufacturing sector played a vital role in the early stages of the UK's recovery as it benefited from the fall in the value of the pound and is a key part of the Government's plans to 'rebalance' the economy by exporting more.

But its performance has been derailed by the squeeze in consumer spending amid the Government's austerity measures and the eurozone debt crisis which threatens to push the UK's biggest trading partner back into recession.

Mr Williamson added: "While there are signs that UK producers are raising their productivity, facing up to the need to adapt and compete aggressively in today's markets, the simple truth is that the current weakness of economic growth at home and abroad means that producers face a challenging time ahead."