Manufacturing upturn eases fears of double-dip recession hitting UK

By Peter Ranscombe
Published on 02/02/2012 13:46

UPBEAT manufacturing data on both sides of the Atlantic yesterday bucked the broader global trend for falling factory output, easing fears of a double-dip recession in the UK.

While the eurozone debt crisis continued to take its toll on the continent’s factories and their Asian suppliers, Britain’s manufacturers posted better-than-expected output for January.

Meanwhile, US factories’ production grew in January at the fastest pace in seven months, boosted by a rise in new orders.

Yesterday’s UK purchasing managers’ index (PMI) compiled by the Chartered Institute of Purchasing & Supply (Cips) and analysts at Markit gave a reading of 52.1 for January, up from 49.7 in December and its fastest rate of expansion since March.

Any reading above 50 indicates the sector – which accounts for about 12 per cent of the UK economy – has grown.

Higher output from UK factories also led to a slight rise in stocks of finished goods, the first increase since April 2008.

Foreign demand rose for the second month running in January, amid reports of improved order inflows from clients in Brazil, China, the Middle East and the US.

Duncan Irvine, head of corporate banking at Barclays, said: “The PMI figures are a shot in the arm for manufacturing, a sector that appears to be increasingly looking outside of the eurozone for export growth, with orders increasing in markets as diverse as Brazil and the Middle East.”

Philip Hoey, a senior manager at foreign currency exchange firm Caxton FX, noted that the upbeat manufacturing figures had given sterling an early boost.

Looking ahead to today and tomorrow’s figures from Cips and Markit, Hoey said: “Construction and services PMI figures are both likely to reveal further growth in those sectors and we believe they could well follow the manufacturing data, leading to further gains for the pound.”

On the other side of the Atlantic, the PMI compiled by the Institute for Supply Management rose to 54.1 in January from 53.1 in December, showing the world’s biggest economy had a strong start to the year.

Chris Williamson, chief economist at Markit, said: “The data bode well for the US economy at the start of 2012, with improved demand from home and abroad driving production levels higher and boosting employment.”

The figures from America and Britain came in sharp contrast to those for many European countries, with French manufacturing contracting further in January.

Greece, Ireland, Italy and Spain were also among the eurozone nations posting contractions, but Germany’s powerhouse economy bucked the trend, with its manufacturing sector continuing to expand.

Markit’s eurozone PMI posted a reading of 48.8 for January, up from 46.9 in December but still below the magic 50 figure.

An equally mixed picture emerged from economies in Asia. The Chinese government’s official PMI inched up to 50.5 last month from 50.3, giving a boost to copper prices, which in turn led the heavily-weighted mining stocks giving a boost to London’s FTSE 100 index.

But a slightly more downbeat reading of 48.8 from a rival index compiled by HSBC and Markit took some of the shine off the Chinese data. Societe Generale’s Yao Wei said: “Chinese manufacturing has not yet reached a bottom. The trend so far has been consistent with our view that the current downturn will be shallower but more extended than the last downturn.”

South Korea’s manufacturing sector activity and export orders both shrank for a sixth straight month in January, the longest losing streak in three years. In Taiwan, faltering exports bit into factory activity, which shrank for the eighth straight month.

India bucked the gloomy trend, with factory activity growing at its fastest pace in eight months. Unlike most of its Asian peers, India’s economy is far less exposed to export demand.