New manufacturing figures ‘a shot in the arm’

CIPS CEO David Noble (pictured) said the January figures were, "very positive news and a great way to start the year." He went on: "Although the manufacturing sector represents a smaller proportion of total UK GDP than 10 or 20 years ago, it is still a very important part of the economy. It is therefore encouraging to see such strong growth and it suggests we are coming out of recession much quicker than previously feared. He believed that one of the most encouraging aspects to emerge from the CIPS' purchasing managers' index (PMI), which provides a single figure indication of operating conditions in the manufacturing sector, was the turnaround on the jobs front. "For the first time in 21 months there has been an increase in employment, albeit only a slight one. Employment is usually a lagging indicator so it suggests that firms are becoming much more confident about the future. "Inevitably, though, purchasing managers voiced some notes of caution. The spike in purchasing activity was attributed to inflationary concerns and delivery delays – rather than increased client demand. Also, the highly competitive nature of this still fragile market meant firms shied away from raising their selling prices to a sufficient extent to fully cover cost increases." Rob Dobson, senior economist at Markit said the survey raised hopes that the sluggish recovery from recession signaled by GDP data in the final quarter of last year had gained momentum moving into 2010. At Barclays, head of manufacturing, transport and logistics Graeme Allinson said the 15 year high in reported activity was "a shot in the arm for battle-hardened UK manufacturers, who have outperformed forecasts to show signs of a recovery gathering momentum" while at the manufacturers' organization EEF, chief economist, Lee Hopley believed that an export driven recovery looked likely "to take centre stage as the main driver for growth across the economy." The headline PMI – which provides a single figure indication of operating conditions in the manufacturing sector – rose to 56.7, its highest level since October 1994, and has now remained above its no-change level of 50.0 for four consecutive months. The index is calculated using data collected on new orders, production, employment, supplier performance and stocks of purchases. New orders rose at the fastest pace in six years, underpinned by stronger domestic demand and the steepest growth in new export orders since (exports) data were first collected at the start of 1996. Growth of new export orders was also reported to have been assisted by the relative weakness of sterling. Gains in overseas business reflected new contracts from Asia, the Eurozone, Latin America, the Middle-East and the US.