Manufacturing grows at record pace

 
City A.M. Reporter
Manufacturing activity grew in January at its fastest pace since records began in 1992, and factory costs also surged, in a further sign that price pressures are building in the economy, a survey showed.

Employment in the manufacturing sector also rose at the quickest pace since the records began.

The Markit/CIPS manufacturing Purchasing Managers' Index (PMI) climbed to 62.0 in January from an upwardly revised 58.7 in December. That was the highest reading since the survey began in 1992 and well above the consensus forecast of 57.9.

The survey, released on Tuesday, showed that new orders and employment also rose at their fastest rate on record and factory gate prices climbed at their strongest clip since August 2008.

The figures suggest the manufacturing sector continues to enjoy strong growth even as broader economic activity remains subdued, and is likely to raise expectations that interest rates will have to rise sooner rather than later.

The Bank of England left its key interest rate at a record low 0.5 percent in January, but two of the nine-member Monetary Policy Committee voted for a quarter-point increase, because of concerns about inflation, which is running at almost double the Bank's 2 percent target.

"The hackles of the hawks on the Bank of England's Monetary Policy Committee will no doubt be raised," said Rob Dobson, senior economist at survey compiler Markit.

The manufacturing PMI has remained above the 50.0 mark separating expansion and contraction for the past year and a half.

Manufacturing, which accounts for around 13 percent of the British economy, was one bright spot in shock GDP figures published last week that showed the economy shrank by 0.5 percent in the last three months of 2010.

The GDP contraction had already been reflected in a Markit/CIPS services PMI in December, which showed services output fell for the first time since April 2009.

The manufacturing sector is doing much better and Markit said bad weather was not a prominent factor affecting activity in either December or January.

The sector needs to keep expanding and create private sector jobs to offset planned cuts in the public sector as the coalition government seeks to slash a record budget deficit.

Companies in January reported improved demand from both domestic and overseas markets, with the rate of increase in export orders among the fastest since the survey was launched in 1992. Growth reflected higher sales to the United States, emerging markets, Scandinavia and Australia.

However, inflationary pressures also continued to build, with substantial increases seen for both input costs and factory gate prices.

Manufacturers indicated prices were rising for a range of raw materials including chemicals, cotton, energy, food products, metals, packaging, paper and timber.