Manufacturing growth provides hope for an economic recovery

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Britain’s manufacturers remained in growth mode last month, boosting hopes the economy can avoid a triple-dip recession.

The positive purchasing managers’ index (PMI) coincided yesterday with a reassuring snapshot of the eurozone’s manufacturing sector, suggesting that the worst may be over for firms in the single currency zone.

However, the global economy’s continued fragility was highlighted by an equivalent Chinese PMI revealing a modest slowdown in manufacturing growth.

The latest Markit/Cips UK PMI inched down to 50.8 from 51.2 in December – just short of forecasts for a reading of 51 but for a second month running was above the 50 level that separates growth from contraction.

Philip Shaw, an economist at brokerage Investec, said: “Broadly the findings argue against the UK going into a triple-dip recession, and… offer hope that a more sustainable recovery might be in train.”

Howard Archer, chief UK and European economist at IHS Global Insight, described the survey as “reasonably encouraging” but sounded a note of caution over the sector’s outlook for the rest of the year.

“The manufacturing sector may be past the worst after a pretty torrid 2012, but it still has its work cut out to return to sustainable decent growth in the face of ongoing challenging domestic and international conditions,” he said.

The eurozone PMI remained below the crucial 50 mark in January but still jumped to an 11-month high of 47.9.

Chris Williamson, chief economist at Markit, said: “While the industrial sector looks likely to have acted as a drag on the eurozone economy in the final quarter of last year, deepening the double-dip downturn, the PMI provides hope that the first quarter could mark the start of a turnaround.”

Meanwhile, eurozone inflation fell to a two-year low of 2 per cent last month as firms cut prices at a time of record joblessness, potentially giving the European Central Bank more scope to lower interest rates.