Factory momentum lifts economy hopes for 2014

The government has been keen to reduce Britains reliance on consumer spending. Picture: Getty

Although the closely-watched purchasing managers’ index (PMI) eased slightly in December, it remained well inside growth territory, while the average reading for the final quarter of 2013 was the strongest for more than two-and-a-half-years.

The Westminster government has been keen to reduce Britain’s reliance on consumer spending and has taken heart from a pick-up in factory activity in recent months.

While manufacturing has yet to recover to pre-crisis output levels – unlike the service sector, which has already surpassed them – experts believe that broad-based growth should keep the recovery on track.

The headline PMI reading eased to 57.3 last month from November’s three-year high of 58.1 – still well above the 50 mark that separates growth from contraction.

The average reading for the fourth quarter was the highest since the first three months of 2011, at 57.2.

David Noble, chief executive at the Chartered Institute of Purchasing & Supply, which produces the PMI reports alongside research firm Markit, said: “UK manufacturing ended 2013 on a high and with all signs of powering ahead into 2014.”

Rob Dobson, senior economist at Markit, said: “The question everyone wants answering is whether this upturn can develop into a self-sustaining recovery.

“The news is still good on this score, as growth is coming from a broad base that should help keep the rebound on track during the early stages of 2014.”

The reading for new orders slipped to 60.4 in December from November’s 19-year high of 63.9, but remained well above the historical average, while the rate of jobs growth in the sector was the second strongest for two-and-a-half years.

But the survey flagged up concerns over rising prices as input inflation hit a 28-month high and output charges rose at the fastest rate since September 2011.

Factories faced higher energy, commodity and raw material costs, among other price pressures, according to the survey.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “Manufacturers will be hoping that ongoing good news on the UK economy further lifts business confidence, which in turn translates into sustained higher demand for capital goods.

“Encouragingly, there is evidence in recent surveys that businesses are now lifting their investment plans.

“However, UK manufacturers may be somewhat worried by the recent strength of sterling.”