Surprise boost in manufacturing activity

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The Independent Online

A surprise boost in manufacturing activity lifted the UK economy's fragile recovery hopes today, despite the sector seeing a two-year low for exports.

The Markit/CIPS Purchasing Managers' Index, in which a reading above 50 indicates growth, recorded a level of 51.1 in September, up from 49.4 the previous month and ahead of the City's forecast of 48.5.

The sector's first growth in three months provided "some cause for relief" but economists warned the sector has only flatlined over the past three months, while export orders slumped to their lowest since May 2009 after being hit by the slowdown in global growth amid the eurozone debt crisis.

The improved performance was due partly to manufacturers catching up with backlogs in their work at the fastest pace for two years while new orders showed only a slight increase.

Employment levels in the sector fell for the third month in a row.

The slowdown in the manufacturing sector in recent months has come as a blow to the Government's plans to strengthen the economy through exporting more goods.

Rob Dobson, senior economist at report author Markit, warned that export orders are being hit by the eurozone debt crisis, leaving manufacturers increasingly reliant on the "fragile" UK market.

The sector's contribution to the economy will remain modest at best for the rest of the year, he added.

Howard Archer, chief economist at IHS Global Insight, said the survey provided "a rare ray of sunshine through the clouds hovering over the UK economy".

He added: "Despite September's improvement, the fact remains that the manufacturing sector is finding life much more difficult now compared to early 2011 and much of 2010.

"Domestic demand for manufactured goods is held back by serious headwinds, notably including tightening fiscal policy and a major squeeze on consumers, while a slowdown in global growth is clearly limiting export orders appreciably."

He said the better-than-expected figures may help deter the Bank of England from launching another bout of quantitative easing on Thursday, although the result will also hang on survey data for the construction and services sectors over the next two days.

The survey also revealed that inflationary pressures eased as increases in input costs and output prices were their weakest for about a year and a half.

The picture among manufacturers in Europe was bleak, with activity in France hitting its lowest level since July 2009 as new orders and output continued to fall and staffing levels fell for the first time in a year.

It was a similarly gloomy story in Spain, where the index hit a 27-month low and new business decreased at its fastest pace since May 2009.

Italian manufacturers saw an increase in production but warned of a "marked decline" in new orders as jobs were cut at their fastest rate for a year.