UK manufacturing PMI ahead of forecasts in January, but ... -UPDATE

Date: Wednesday 01 Feb 2012

-Foreign demand rose for a second month, but in a less marked fashion.
-Hiring in SMEs compensates for lay-offs at larger firms.
-Average vendor lead times lengthen for the third month running.
-Rate of input price deflation is the steepest since June 2009.
-Stocks of finished goods increased, for the first time since April 2008.


The seasonally adjusted Markit/CIPS UK manufacturing sector purchasing managers’ index for the month of January rose to the 52.1 point level, an eight month high, following the previous month’s reading of 49.6.

The consensus expectation was for a smaller up-tick, to 49.8.

The above reading means that the sector began growing again as production levels increased for a second consecutive month, “supported by growth of new orders and the clearance of backlogs of work,” according to Markit.

Of interest, firms are said to have experienced a further increase in new export orders. Nonetheless, the rate of increase was only moderate and less marked than one month earlier.

Commenting on the data, David Noble, chief executive officer at the Chartered Institute of Purchasing & Supply, is of the opinion that:

“The UK manufacturing sector has sprung to life in the first month of 2012 to defy any economic gloom, but it is too early to say whether this trend is sustainable.

“The marked decline in input prices is good news for the sector’s overall profitability. The boost in output is also welcome, but in reality is bolstered by manufacturers working through existing backlogs, which can only be a short-term fix (...)"

Blerina Uruci, economist at Barclays Capital, for her part, is telling clients that, “The manufacturing PMI and other survey measures have recently indicated this could be the start of a measured recovery in manufacturing, after the sector experienced a rapid deterioration last year.

“Nevertheless, manufacturing activity still has some way to go before it reaches the pace of growth seen this time last year. Much will depend on whether the recent pick-up in overall new orders will be sustained and the slowing in export new orders does not bode well in this respect.

“Even so, this is a good start to Q1 12 and, if the pace of improvement is sustained, it would imply some upside risks to our forecast for a small quarterly fall in manufacturing output in Q1.”

AB

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