Manufacturing figures show recovery in December

Britain's manufacturing industry enjoyed its strongest growth in more than two years in December, in a sign that the sector's recovery from recession is back on track. The latest CIPS/Markit purchasing managers' index – which measures orders, output and confidence across the sector – rose to 54.1 in December, up from 51.8 the previous month. This beat City forecasts of 52, and is the highest figure recorded since November 2007. Economists said that this reinforces the belief that the UK economy returned to growth in the last three months of 2009, which would bring the UK's longest recession on record to an end. Markit said that a surge in new business helped the sector bounce back in December, after a lacklustre November in which output suffered a disappointing fall . The index that tracks new orders hit a 29-month high last month. "December's PMI data signals a positive end to a tumultuous year for UK manufacturers," said Rob Dobson, Markit's senior economist. Dobson cautioned, though, that "lacklustre" capital spending and a tough export market were still dragging on Britain's manufacturing base. Later this week the Bank of England's monetary policy committee will meet to set interest rates, and decide whether to extend its quantitative easing programme further. Alan Clarke of BNP Paribas believes that today's data means the MPC will not extend QE beyond its current £200bn budget . Colin Ellis, European economist at Daiwa Capital Markets Europe, agreed that the PMI figures are "a late Christmas present for the MPC". He is concerned, though, that there is little sign that the weak pound is helping British manufacturers sell goods overseas. "With employment also still falling in December, albeit at the slowest pace since May 2008, and the recent divergence between the PMI surveys and official data, the risk is that today's survey figures do not translate into robust, sustained production growth," Ellis warned. Economists also took encouragement from separate PMI data from across the eurozone, which showed that activity increased for the third successive month, although at a slower pace. "Eurozone GDP growth in the fourth quarter of 2009 may well have at least matched the 0.4% quarter-on-quarter expansion achieved in the third quarter," predicted Howard Archer, chief UK and European economist at IHS Global Insight. There was further encouraging news for the City this morning from the Bank of England, which reported that mortgage approvals and net mortgage lending were both higher than expected in November. A total of 60,518 mortgages were approved during the month, up from 57,718 in October.