UK manufacturing outlook improves

The pharmaceutical industry is one of the more successful parts of the sector

UK manufacturing shrank at its slowest pace for a year in May, a survey suggested, adding to hopes that the worst of the recession had passed.

The pace of decline in new orders and output continued to ease, according to the Purchasing Managers' Index (PMI).

A separate study by the the Engineering Employers Federation said manufacturing growth could return by the end of 2009 year - despite a record overall fall.

But the group also raised its job loss forecast for the year to 188,000.

That means that the EEF expects 40,000 more manufacturing jobs to go in 2009 than it had predicted two months ago.

'Further sign'

The manufacturing PMI rose to 45.4 in May from an upwardly revised 43.1 in April.

That was the third consecutive month of improvement in the index, though any figure below 50 still represents contraction.

"Although the index remains below levels consistent with outright recovery, this is a further sign that the downturn in UK manufacturing is easing," said Rob Dobson, senior economist at Markit which produces the index along with the Chartered Institute of purchase and Supply.

The EEF's second-quarter business trends survey showed a sharp deterioration in output over the past three months, while falls in orders and employment steadied.

However manufacturers expect the pace of decline to ease markedly in the coming three months, which the EEF said indicated that the inventory cycle was coming to an end.

"Members say there has been a pick up in new enquiries and there are hopes this will be translated into firm orders," said EEF head of economic policy Lee Hopley.

However she said that any improvements that were seen later this year would not compensate for the steep decline suffered at the start of 2009.