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UK manufacturing PMI rose well above forecasts in December

Date: Tuesday 03 Jan 2012

UK manufacturing PMI rose well above forecasts in December

-New export orders rose for the first time in five months in December, reflecting increased levels of new work from clients in Germany, East Europe and China.

-Manufacturers are currently relying heavily on backlogs of work to prop up production.

-Average input costs fell for the second successive month, with the rate of decline accelerating to the most marked since June 2009.

-UK manufacturers reported further depletion of inventory holdings in December.



The seasonally adjusted Markit/CIPS UK manufacturing sector purchasing managers´ index (PMI) for the month of December has come in at 49.6 points, comfortably above the 47.7 registered in the month before.

The consensus estimate had been for a fall to 47.3.

The previous month´s level has been revised up from the preliminary reading of 47.6.

The UK manufacturing sector showed signs of stabilisation at the end of 2011. Production was broadly unchanged in December, following back-to-back contractions, and the rate of decline in new orders slowed as the trend in new exports strengthened. Nonetheless, worries regarding the outlook for the Eurozone persist.

Thus, the PMI has remained below the 50.0 no-change mark throughout Q4 2011 and its average during this quarter is the weakest since Q2 2009, Markit explains.

Weakness was mainly centred on the intermediate goods sector, as growth of output and new orders was recorded at both consumer and investment goods producers, Markit has explained.

For David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply:

“There’s no denying that this year will bring both fresh and familiar challenges for the UK manufacturing 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 (…) 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.”

Commenting on the data after its release economists at Barclays are commenting that, "Although December saw a modest improvement in the outlook for the manufacturing sector, growth remains well below the long-run average. (…) Furthermore, the weakness in new orders, and especially in domestic demand, suggest that the subdued activity in the manufacturing sector is likely to continue."

AB

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