Page last updated at 12:55 GMT, Monday, 1 February 2010

UK factory activity 'gains pace'

Car manufacturing
The strong data has raised hopes that the recovery is gaining momentum

UK manufacturing activity grew at its fastest pace in 15 years in January, a survey has suggested.

The Chartered Institute of Purchasing & Supply's purchasing managers' index rose to 56.7 last month, up from a revised 54.6 in December.

New orders rose at their fastest pace since January 2004, at 60.4. A score above 50 indicates growth.

Increased demand pushed the employment index above the 50-point level for the first time since April 2008.

Export boost

Input prices were up at their fastest rate since September 2008, while output prices grew at their fastest since October 2008.

The survey provides a very welcome, decent upside surprise
Howard Archer, Global Insight

"The survey raises hopes that the sluggish recovery from recession signalled by GDP data in the final quarter of last year will have gained momentum as we move into 2010," said Rob Dobson, senior economist at Markit, which helps to compile the PMI data.

The UK economy emerged from recession at the end of 2009, although it grew by just 0.1% in the final quarter of last year.

According to Lee Hopley, chief economist at the EEF, the industry body for engineering and manufacturing employers, the weakness of the pound is helping companies to take advantage of growth in overseas markets.

I don't think this necessarily means there is an improvement in underlying conditions
Stephen Lewis, Monument Securities

"An export driven recovery looks likely to take centre stage as the main driver for growth across the economy, although rising costs mean that manufacturers will have one eye on inflation and continued cost control," he said.

According to the latest SME Trends Survey by the CBI business organisation, export orders for small and medium-sized manufacturers have started to stabilise after seven quarters of decline.

Some analysts suggest the increase in the purchasing managers' index (PMI) is a sign of a strong start from the sector in 2010.

"The survey provides a very welcome, decent upside surprise - which is particularly encouraging following the disappointing fourth quarter GDP data," said Howard Archer from Global Insight.

However, other analysts were more cautious about the figures.

"The PMI was stronger than expected. I don't think this necessarily means there is an improvement in underlying conditions," said Stephen Lewis from Monument Securities.

"It may simply mean that those who are responding feel better about the conditions than they did."

The CIPS UK Manufacturing PMI is compiled from 600 purchasing managers' responses to questions on subjects such as production levels and new orders.

The report is closely watched by economists and markets as it gives the earliest indication of the state of economic activity in a given month.



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