Cheer as sector records surprise rise in activity

The Markit/CIPS Purchasing Managers’ Index – in which a reading above 50 indicates growth – recorded a level of 51.1 in September, up from 49.4 the previous month and ahead of the City’s forecast of 48.5.

The sector’s first growth in three months provided “some cause for relief”.

Tom Vosa, Yorkshire Bank’s head of market economics, said: “Given the gloom surrounding the UK and European economies at present, the bounce in manufacturing activity suggests that the economy will continue to grow in the third quarter, avoiding the dreaded ‘double dip’.

“The survey is consistent with other anecdotal evidence that manufacturing activity is slowly strengthening, but with wholesalers only willing to look one quarter ahead, concerns about the state of order books will limit the pace of expansion for now.”

Economists warned the sector has flatlined over the past three months, while export orders slumped to their lowest since May 2009 after being hit by the slowdown in global growth amid the eurozone debt crisis.

The improved performance was due partly to manufacturers catching up with backlogs in their work at the fastest pace for two years while new orders showed only a slight increase.

Pam Liversidge, who starts her role as the first ever female Master Cutler in Sheffield today, said: “These figures demonstrate that manufacturing has an underlying resilience.

“In the Sheffield city region there are mixed reports of levels of activity and strength of order books.

“Overall many companies are busy, but there continues to be a need to improve profitability and cash flows.”

According to the latest report, employment levels in the sector fell for the third month in a row.

The slowdown in the manufacturing sector in recent months has come as a blow to the Government’s plans to strengthen the economy through exporting more goods.

Rob Dobson, senior economist at report author Markit, warned that export orders are being hit by the eurozone debt crisis, leaving manufacturers increasingly reliant on the “fragile” UK market.

The sector’s contribution to the economy will remain modest at best for the rest of the year, he added.

Howard Archer, chief economist at IHS Global Insight, said the survey provided “a rare ray of sunshine through the clouds hovering over the UK economy”.

He added: “Despite September’s improvement, the fact remains that the manufacturing sector is finding life much more difficult now compared to early 2011 and much of 2010.

“Domestic demand for manufactured goods is held back by serious headwinds, notably including tightening fiscal policy and a major squeeze on consumers, while a slowdown in global growth is clearly limiting export orders appreciably.”

He said the better-than-expected figures may deter the Bank of England from launching another bout of quantitative easing on Thursday, although the result will also hang on survey data for the construction and services sectors over the next two days. Analysts said the central bank is unlikely to take any action this month.

James Knightley, economist at ING, said: “The report suggests that while we almost certainly will see more votes for quantitative easing we are probably not going to see a majority on Thursday.

“We feel it is a very close call, but narrowly favour a delay until November given the BoE will have new formalised economic forecasts.”

Andy Tuscher, Northern region director for the manufacturers’ organisation EEF, said: “By expanding in September manufacturing has bucked expectations, suggesting the summer dip into negative territory may have been temporary. However, the weakening in new export business could be a worrying signal of things to come.”