Boost for sector as growth highest for 15 years

The sector has enjoyed a strong start to 2010, with employment growing for the first time in nearly two years, according to the Chartered Institute of Purchasing & Supply (CIPS).

Its monthly headline activity index, where a score over 50 registers growth, showed a reading of 56.7 in January – the highest level since October 1994.

The result, ahead of an upwardly revised 54.6 seen in December, was far better than expected. Many economists had predicted a small decline.

A rise in employment also came as a welcome development for the sector, albeit following a "slight increase", said CIPS.

UK manufacturers cut thousands of jobs during the recession. The weak pound is providing a boost, with new export orders at the highest level since CIPS began collecting export data in 1996.

This, combined with improvements in domestic demand, helped total new orders rise at the fastest pace in six years.

David Noble, CIPS chief executive, said the January result was "a great way to start the year" for the embattled sector.

He added: "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."

Steve Davenport, the managing director of Leeds-based manufacturing firm Bartuf Systems, which has 7m turnover and 70 staff, said: "In manufacturing, we're at the mercy of fortunes in the sectors we produce for and I believe it's hard to predict how our industry will be affected in 2010, as our fate involves so many factors out of our control.

"The statistics are a positive indicator for the economy as a whole, for if our sector is performing above expectations it must be because those we serve are seeing better results too."

Bartuf, which has production sites in Armley and Hull, designs, manufactures and supplies retail displays.

Margaret Wood, the regional chairman of the Institute of Directors (Yorkshire & Humber),said technological innovation had made Yorkshire's manufacturers more competitive, but she wanted to see more evidence of banks lending to businesses to help stimulate growth.

James Newman, Sheffield's Master Cutler, said he was delighted with the positive manufacturing figures. Many manufacturers in South Yorkshire had survived the recession by exporting and the weak pound had helped them, he added. However, he warned that the levels of risk banks were prepared to take were much lower than in the past.

Lee Hopley, chief economist at manufacturing body EEF, said: "An export driven recovery looks likely to take centre stage as the main driver for growth across the economy, although rising costs mean that manufacturers will have one eye on inflation and continued cost control."

Jonathan Loynes, at Capital Economics, stressed manufacturing output still had a "very long way to go to get back to its pre-recession peak".

Bank's next move leads to subdued reaction

Market reaction to the manufacturing figures was subdued because many analysts believe they reinforced the view that the Bank of England will announce a pause in its 200bn quantitative easing (QE) programme later this week.

Analysts highlighted the difference between the PMI surveys and official data, as the PMI has signalled growth for several months but GDP figures showed the economy grew a lacklustre 0.1 per cent in the final quarter of 2009.

"While the factory figures are encouraging, it is difficult to peg recovery hopes on one month's exporters' data when domestic liquidity and demand conditions remain depressed at the peak of the policy stimulus," said Lena Komileva, G7 market economist at Tullet Prebon.

"With the Bank of England widely expected to stop asset purchases this week, consumers face considerable uncertainty given the prospect of a higher cost of living, higher mortgage rates, and higher taxes."