Manufacturing production, new orders and employment all continue recovery

According to the latest data from the Chartered Institute of Purchasing and Supply (CIPS) and Markit, the UK manufacturing sector made a robust start to the third quarter of 2010, signaling further marked increases in both production and new work received in July. In turn, that encouraged manufacturers to raise employment for the fourth consecutive month. The recovery also remained broad-based, with growth of output, new orders and jobs reported across the consumer, intermediate and investment goods sectors. The CIPS/Markit Purchasing Managers' Index (PMI) – a single figure calculated from data on new orders, production, employment, supplier performance and stocks of purchases – posted 57.3 in July, down from 57.6 in June, remaining well above the survey average (51.1) and broadly in line with that recorded for Q2 2010 (57.9). Rob Dobson, senior economist at Markit, said: "UK manufacturing continued to boom at the start of the third quarter, with the PMI suggesting only a slight loss of momentum from the 1.6% surge in production seen in the second quarter. The PMI is showing surprising resilience, having fallen only modestly since hitting a fifteen-and-a-half year peak in May, and July even saw new order growth accelerate again, largely on the back of rising domestic demand. "This all suggests that the manufacturing sector will remain a strong contributor to GDP in Q3, raising hopes that growth of the economy may not slow too significantly from the 1.1% bumper figure already seen for GDP in Q2. "There are some concerns that growth may slow more sharply in coming months, however, especially in relation to exports. Overseas sales growth collapsed from a survey record rate of increase in April to near-stagnation in July. Some slowing was to be expected, given the weakening in global trade flows that have been evident in recent months, particularly in Asia, as authorities act to cool their economies to ward off inflation. But the extent of the slowdown in export sales is very surprising, and suggests that UK manufacturers are losing out in the global recovery, which will disappoint those that are hoping the UK economy can rebalance away from domestic consumption towards exports." CIPS CEO David Noble (pictured) said it was good to see the UK manufacturing sector holding strong heading into the second half of the year. He went on: "As expected, we're starting to see the PMI taper from the post-recession growth peak, but this is certainly happening at a slower pace than originally anticipated, which means we can breathe again. "While trade from Europe slowed, this was partially offset by strong demand from the US and Asia. Despite this subdued demand for export goods, volumes of new orders were still strong, which coupled with increased production, encouraged firms of all types and sizes to raise their headcount. Looking forward, we anticipate a measured and muted pace of growth, which, relative to the unprecedented lows hit during the downturn, is still a step in the right direction."