UK’s factory growth hits a 16-year peak

 
Julian Harris
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BRITISH manufacturing growth hit a massive 16-year high in December, it was revealed yesterday.

Extreme weather and tough economic conditions had led economists to expect a fall in the Purchasing Managers’ Index. Yet the measure of business activity improvement rallied to 58.3, its fastest rate of growth since 1994.

The index, compiled by Markit and the Chartered Institute of Purchasing & Supply’s, has now remained above 50 – signalling growth in the manufacturing sector – for 17 straight months.

Broad based improvements were behind the rise, with factory output and new orders both jumping to seven month highs.

“This is a fantastic report,” commented Howard Archer of IHS Global Insight. “Healthy orders growth in December bodes well for manufacturing output in early 2011.”

To cope with the backlogs, and more new orders, firms increased their levels of employment so that jobs growth was recorded for the ninth successive month.

“This boosts hopes that the private sector may be able to compensate for the public sector job losses that are increasingly on the way,” said Archer.

“However, manufacturing output only accounts for 12.8 per cent of GDP,” Archer warned, while manufacturing provides less than nine per cent of jobs in the economy.

The rise in manufacturing was “underpinned” by new export business, the report said, “reflecting increased sales to clients in mainland Europe, the US and East Asia.”

Export orders upticked by two points to 59.9, the second highest rate of 2010. “Exports will be key to the outlook for 2011,” said Andrew Goodwin of the Ernst and Young Item Club. “The index contains evidence of strong demand, even from the Eurozone where the sovereign debt crisis has seemingly been unable to dent demand for UK goods at this stage,” he said.

However, the news was slightly dampened by rising prices, as the UK faces the prospect of even higher inflation. Growth was recorded in both input and output prices, with input prices seeing the steepest rise in inflation since the survey began in January 1992.