Manufacturing sector growth hits 15-year high

There are glimmers of a brighter year ahead for Britain's embattled factories after a survey showed the manufacturing sector grew at its fastest pace in 15 years last month. The news of strong demand on manufacturers from both home and abroad cemented economists' view that the worst of the downturn is over, despite official data showing Britain only just crawled out of recession at the end of last year. Echoing other surveys of strength returning to the economy, today's PMI manufacturing survey from the Chartered Institute of Purchasing and Supply/Markit gave a main reading of 56.7 for January. That compared with 54.6 in December , was well above City analysts' expectations of 54.0, and was the highest reading since before Labour came to power. A figure above 50 denotes expansion and for much of last year the readings were firmly below that level, showing a contracting manufacturing sector. January's improvement came as new orders rose at their fastest pace since January 2004. Within that, export orders grew at their strongest pace since the series began in 1996, reflecting the ongoing weakness of the pound. December's headline activity reading was also revised higher, prompting analysts to speculate the weak official GDP data on the final quarter of 2009 could also be upgraded at the next reading later this month. The PMI's compilers suggested 2010 would see growth picking up from 2009's lacklustre finish and they highlighted that manufacturing jobs were on the up for the first time in almost two years. "January data point to a robust start to 2010 for the UK manufacturing sector. The headline PMI hit a 15-year high as growth of new orders and production accelerated and employment rose for the first time since April 2008," said Rob Dobson, senior economist at Markit. "The main driver of growth was a surge in new export orders, as improving global market conditions and the ongoing weakness of sterling led to the sharpest rise in foreign demand recorded in at least 14 years. "The survey therefore raises hopes that the sluggish recovery from recession signalled by GDP data in the final quarter of last year will have gained momentum as we move into 2010." Still, experts cautioned that the survey has been out of synch with more downbeat official economic data for a while. Figures from the Office for National Statistics last week showed a meagre 0.1% quarterly growth rate for the wider economy at the end of 2009. "The survey provides a very welcome, decent upside surprise – which is particularly encouraging following the disappointing fourth quarter GDP data," said Howard Archer, economist at IHS Global Insight. "However, it needs to be borne in mind that the purchasing managers' surveys have recently been significantly stronger than the hard data – for both manufacturing and service sector activity." The jobs news from the PMI will also be taken with caution from those in the manufacturing sector and elsewhere after warnings the recession will be felt for years to come in the employment market. Drug maker GlaxoSmithKline is expected to announce thousands of job losses this week on top of thousands announced by rival AstraZeneca last week. Toyota has also told workers at its main UK plant that it will run out of work for 750 people in the summer. The PMI survey comes as the Bank of England's monetary policy committee prepares to meet on Wednesday and Thursday this week to make the critical decision on whether to suspend its £200bn programme of quantitative easing (QE). The BoE released its own monthly consumer borrowing data this morning showing consumer credit rose for the first time since last June. Economist James Knightley at ING Financial Markets described today's data as "encouraging" and said the rise in borrowing "offers further hope that credit access is improving and households are more prepared to take on debt". "This suggests that UK GDP can post a reasonably healthy growth figure for the first quarter of 2010 while supporting the view that the BoE will not choose to expand its asset purchase facility at this week's MPC meeting." The Bank also published data showing mortgage approvals – seen as a leading indicator of property market activity – unexpectedly fell in December. That cast more doubt on whether the recent house price growth can be sustained even though the Nationwide building society last week said its survey of the property market could show annual inflation returning to double figures this month . "The rapid pace of housing activity could be starting to slow, particularly with household finances under strain from low wage growth, a high debt burden and rising taxes," said Knightley.