Factory output ends long standstill

MANUFACTURING activity picked up in February for the first time in eight months in response to stronger sales and a build-up in orders, according to the latest UK purchasing managers' survey.

The survey is in line with last week's industrial trends survey from the Confederation of British Industry, which suggested that devaluation was starting to boost orders by making British goods cheaper in overseas markets.

The overall purchasing managers' index rose 1.9 points to 51.2 per cent in February, with more than 50 per cent suggesting growth in manufacturing.

The output index rose to 53.8 per cent in February, the fourth successive month in which it has been over 50 per cent. Many members of the panel reported increased activity, but the Chartered Institute of Purchasing and Supply warned that the latest figure 'may merely reflect a pick-up from traditionally low levels of production in January'.

The new orders index also suggested a fourth successive month of improvement, with devaluation helping to boost overseas demand and domestic orders for goods that face foreign competition.

Sales were higher than expected, leading to a sharp jump in the quantity of goods bought by purchasing managers and a further fall in stock levels.

More worryingly, the index for prices rose by 1.7 points to 68.4 per cent as most survey respondents reported increased prices because of the fall in the pound.

Annual rounds of price negotiations also drove up domestic raw material prices. These could fuel inflationary pressures in coming months, although they will be offset by subdued labour costs.