Page last updated at 14:45 GMT, Monday, 4 January 2010

UK manufacturing activity 'accelerates'

Car manufacturing
Car manufacturers have been more positive in recent weeks

UK manufacturing activity grew at its fastest pace in more than two years in December, a survey has indicated.

The Chartered Institute of Purchasing & Supply's purchasing managers' index rose to 54.1 from 51.8 in November. A score above 50 indicates growth.

The survey also found an increase in the new orders index to 57.4, the highest level since July 2007.

The pace of job cuts in the sector was the weakest since May 2008 and mainly centred on larger companies.

'Tumultuous year'

The pound jumped higher after the data was released and gained 0.2% on the US dollar to reach $1.62.

Some analysts suggest the increase in the purchasing managers' index (PMI) is a sign that 2010 could be a better year for the sector.

It's an encouraging number but an awful lot depends on global economic growth
Mark Miller, Lloyds TSB

"December data signal a positive end to a tumultuous year for UK manufacturers," said Rob Dobson, senior economist at Markit, which helps to compile the PMI data.

But worries over the general state of the UK economy mean others are more cautious.

"Yes, it's an encouraging number, taken alone. But an awful lot depends on global economic growth this year and whether UK manufacturers can continue to export reasonably successfully," said Mark Miller, economist at Lloyds TSB.

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.

'Pretty glum'

The UK is the only G20 economy still in recession. Latest figures show that the UK economy shrank by 0.2% between July and September last year.

Looking ahead, some business leaders are pessimistic about prospects for the UK economy as a whole, according to a separate study released by the Institute of Directors (IoD).

Yes there could be an occasional spurt of activity, but the next two years look pretty glum
Graeme Leach, IoD chief economist

"We are very doubtful of a sharp bounce back in 2010," said Graeme Leach of the IoD.

It is predicting an L-shaped recovery, with very weak growth in 2010 and 2011.

It also argues that a double-dip or even a triple-dip scenario is potentially possible, where the economy falls back into recession after expanding for a short period.

The business association said growth would be restricted by households and businesses favouring paying off debts rather than spending, and post-election fiscal tightening.

"Yes there could be an occasional spurt of activity, but the next two years look pretty glum," Mr Leach added.



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