UK manufacturing recovery eases recession worries

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The Independent Online

British factories embarked on a modest recovery last month, according to figures which have provided some hope of economic robustness after official figures showed the sector was on the brink of recession.

Growth in Britain's manufacturing sector accelerated in October for the first time in three months, a closely watched survey of business managers showed. The increase was greater than had been expected and boosted hopes that the 1.1 per cent slump in output in the official figures over the summer had been a blip. However, there was further evidence that manufacturers' profits are under pressure as raw material costs rose at the fastest rate for almost a decade.

The Chartered Institute of Purchasing and Supply said its index, based on responses from 620 companies, rose to 53.0 from September's 52.3 on a scale where a number over 50 represents expansion. It said the expansion was driven by growth in new orders and jobs, continuing a period of expansion stretching back to July last year.

The CIPS said that output grew again but registered its slowest expansion since June 2003, with the index dropping to 53.1 from 53.2. Stewart Robertson, at Lombard Street Research, said: "Gloom in the manufacturing sector is overstated. Companies would not be planning to take on more employees if they were not reasonably confident that the conditions merited such an expansion."

Analysts said the CIPS survey results pointed to annual growth in the sector recovering from annual growth of 0.4 per cent in August to 2.0 per cent.

The slump in manufacturing was a key driving force behind the halving in the overall economic growth from 0.9 to 0.4 per cent between the second and third quarters of the year. But economists said a manufacturing recovery would not be enough to prompt the Bank of England to raise interest rates when its Monetary Policy Committee meets tomorrow and Thursday.

Malcolm Barr, at JP Morgan, said the sluggish growth in output pointed towards another fall in the official figures for September published on Friday.

A poll of City economists by Reuters showed that 44 out of 45 believed the MPC will leave rates on hold, indicating there will be no change in rates until at least February.

Despite the improvement seen in the latest CIPS survey, many companies said they were cautious in the face of strong margin pressures as raw material prices keep surging.High oil prices were driving up some product prices, the survey said.