May 1 2013

Strong export sales help UK manufacturing sector stabilize after slump earlier in year, Cips/Markit survey shows. The reading follows a 0.3% rise in GDP in the first quarter, which was largely attributed to the strength of the services industry…


Powered by article titled “UK manufacturing shows signs of recovery – but firms remain cautious” was written by Phillip Inman, economics correspondent, for The Guardian on Wednesday 1st May 2013 10.23 UTC

A rebound in manufacturing appears to be under way after a disastrous start to the year, according to a survey of the sector in April.

Strong sales of consumer goods to North America, the Middle East, Latin America and Australia helped the sector stabilise after a slump in January and February.

Ministers will cheer a recovery in the sector, especially after the 0.3% rise in GDP in the first three months of the year, which was largely attributed to the strength of the services industry.

An improved outlook for manufacturing, which was a drag on output in the first quarter, could allow GDP to maintain a more consistent and positive path over the coming months.

The consumer goods industry led the way, with companies producing machine tools not far behind, as the sector showed a modest rise in production amid a widespread clearance of stock left over from the slump earlier in the year.

Much of the slump is attributed to bad weather at the beginning of the year, though renewed uncertainty in the eurozone and a persistent lack of bank lending for investment also played a part.

Althouth eurozone fears have eased, the situation remains febrile and persistenly tight bank lendingis making some analysts cautious about a possible upturn.

The Cips/Markit survey showed the sector continued to shrink last month but by only a small margin. At 49.8, the manufacturing purchasing manager's index (PMI) continued to be below the 50 figure that divides growth from contraction, though it fed expectations of a return to growth in May.

Lee Hopley, chief economist at EEF, the manufacturers' trade body, said the survey was a mildly encouraging start to the second quarter.

"While still not in positive territory overall, the data indicates a vital revival in export orders with demand from markets in the Americas and Middle East compensating for the continued weakness in Europe. This is a especially positive as the UK sorely needs an improvement in trade if we are to make faster progress on rebalancing growth."

Markit said the eurozone continued to drag on export sales, but a shift to markets further afield was making up some of the difference.

In contrast to the improving output figures, the sector shed jobs for the third straight month and most firms said they remained cautious about a possible sustained recovery.

Rob Dobson, an economist at Markit, said: "Following the poor start to the year, when manufacturing acted as a drag on the economy in the opening quarter, it is welcome to see the sector showing signs of stabilising in April. With forward-looking indicators such as new orders and the demand-to-inventory ratio also ticking higher, the sector should at least be less of a drag on broader GDP growth in the second quarter.

"Manufacturers report that the domestic market is just about holding its head above water, but was still a key cause of disappointingly weak demand, while a solid improvement in new export orders was the real surprise."

The figures followed a disappointing survey of Chinese manufacturing that showed a dip earlier this year turning into a more prolonged slowdown.

The official manufacturing PMI, composed for the statistics bureau by the China Federation of Logistics and Purchasing, fell from 50.9 in March to 50.6 last month.

A Capital Economics analyst, Mark Williams, said: "At face value that is not too big a drop. But April is normally one of the strongest months of the year, particularly for output. The fact that the output component fell at all – from March's 52.7 to 52.6 – is therefore a concern," he said. "If the usual pattern holds, output will weaken in coming months." © Guardian News & Media Limited 2010

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