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UK manufacturing maintains `blistering` rebound

01 June, 2010

Britain’s manufacturing sector is continuing to grow at its fastest rate since 1994, with record increases in order book backlogs during May, and the number of new jobs being created being close to April’s three-year high.

The monthly manufacturing PMI (Purchasing Managers’ Index) – published by the Chartered institute of Purchasing and Supply (CIPS) and the financial data provider Markit – held steady during May at the same level as April’s 15½-year high, with higher output being supported by the growth in new orders, including exports. Production rise for twelfth successive month, while total new orders recorded an eleventh successive month-on-month rise.

“UK manufacturing maintained its blistering start to second quarter, says the report’s author, Rob Dobson, who is a senior economist at Markit. “Although production remains well below pre-recession levels, the sector is now recovering its losses at a surprisingly rapid pace. The PMI suggests that output growth this quarter should at least match the first quarter gain of 1.2% reported by the official figures.

“This rapid growth is stretching capacity, leading to a survey-record increase in backlogs of uncompleted orders,” Dobson adds. “The good news is that this encouraged employers to boost staffing levels again, and a strong rise in orders for plant and machinery suggest that companies are also boosting their investment spending.

“However, although growth was driven by a combination of robust demand from domestic customers and a strong export performance, both of these sources of new orders may disappoint as we move into the summer,” he cautions. “Austerity measures announced in the UK may cool home demand, while export sales may be hit by the sovereign debt crisis in our largest trading partner, the Eurozone.”

CIPS CEO David Noble comments that the strength of recovery of the UK manufacturing sector “has taken everyone by surprise”. This time last year, he points out, “the industry was on its knees. While the turnaround so far this year is obviously good news, we can’t forget this has been driven in large part by the weak sterling exchange rate bolstering export demand.

“Problems in countries such as Greece and Spain have strengthened the pound against the Euro recently and could also have a severe impact on the Eurozone economy,” Noble warns. “Given that the euro countries are Britain`s biggest trading partners, any double-dip recession there would undoubtedly damage the UK manufacturing sector.

“There are also additional troubles looming on the horizon which could constrain the pace of recovery,” he adds. “The boost from the inventory cycle will eventually wane, as firms stop balancing their stock, meanwhile, the new government’s austerity measures will undoubtedly dampen the domestic market.

“Despite all this, the increase in manufacturing jobs is very good news, not just for the health of the sector but for the UK economy as a whole,” Noble suggests. “Higher employment means more money in the pockets of consumers which will have a positive knock-on effect on other parts of the economy and finally get us on the homerun.”

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