Bright start to 2012 as PMI nears 50 benchmark

Operating on a scale where 50.0 indicates neither growth nor contraction, the index itself rose to 49.6 in December, up from 47.7 in November according to the latest Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI). New orders fell for the sixth month in a row but companies registered an increase in output linked to higher foreign demand with new export orders rising for the first time in five months. New work came from clients in Germany, East Europe and China. Rob Dobson, senior economist at Markit and author of the PMI said the upsurge in new export business countered some of the weakness in the domestic market and pointed out that job losses were also less widespread than November, suggesting that pessimism about the coming year may have lifted a little. He added: "However, over the fourth quarter as a whole, producers reported their worst performance since the second quarter of 2009. Manufacturing will therefore likely be a drag on the economy in the closing months of the year. Looking ahead, manufacturers are currently relying heavily on backlogs of work to prop up production. This is only a temporary fix, and the trend in overall order books needs to improve if the sector is to avoid a protracted period of lacklustre performance." CIPS CEO David Noble predicted that 2012 will bring fresh and familiar challenges for the sector. "It is encouraging to see output remain steady last month after the declines of recent months, but with the sector highly exposed to a shaky Eurozone, and reports of softening demand – ironing out economic problems in key export partners will be critical to how the sector performs," he added. "There are fragile signs of growth centred on some very specific parts of the sector where demand remains strong, particularly consumer and capital goods, with some businesses even reporting record growth that defies the gloom. That said for every bright spot there is another business struggling to build momentum." EEF chief economist Lee Hopley some manufacturing sectors were still growing relatively strongly, confirming the dual speed recovery seen in the official statistics in recent months. "This growth in orders and production has been bolstered by an improvement in export demand, which we'll need to see continue in the coming months to prop up growth across the wider economy."