Hopes that economic recovery might be setting in were boosted yesterday by figures showing that manufacturing activity grew last month for the first time since March 2008.
Companies benefited in July from the fastest flow of new orders since November 2007, according to the latest Chartered Institute of Purchasing and Supply/Markit monthly report.
The headline manufacturing purchasing managers’ index rose to 50.8 from an upwardly revised 47.4 in June, the first time it has been above the 50 level that divides contraction from growth since March last year.
This was well above economists’ expectations of a rise to 47.7 and marks a sharp turnaround from the record low of 34.9 set in November, adding to evidence that Britain’s economy is over the worst of the recession.
“The turnaround signalled by PMI data during 2009 to date has been remarkable,” said Rob Dobson, senior economist at survey compiler Markit Economics.
“The base of the recovery remains broad, which should help with sustaining gains into Q4.”
The new orders component of the headline PMI number jumped to 55.9 from June’s 49.8, its highest level since November 2007 and the first time orders have risen since March last year.
“Panellists reported that market conditions and client confidence were stabilising, especially in the domestic economy. Successful promotional activity and price discounting also supported sales volumes in July,” Markit said.
But the survey had some bad news on jobs.
Employment was still contracting rapidly, albeit at the slowest pace since June 2008, with reports of redundancies, hiring freezes and the non-replacement of factory workers who quit. Spirits company Diageo reported 500 job losses last month and steelmaker Corus announced 1,922 workers would lose their jobs late in June.
“The sector is still reeling from the depth of the recession. Restructuring and cost control efforts remain widespread, job losses are still mounting and inventory positions being unwound at an historically rapid pace,” Mr Dobson said.
Manufacturing output rose for a second consecutive month in July, and at its fastest pace since December 2007 – markedly more positive than economists’ expectations that official manufacturing data would show a 0.1 per cent fall in output in July after a 0.5 per cent drop in June. Companies reported restarting production they had stalled during the depths of the recession earlier in the year, with large firms expanding output faster than smaller ones.
Nonetheless, firms said stocks remained relatively high compared to current demand, and that some were selling inventory to boost cashflow.
The CIPS report “stoked hopes that the economy could achieve modest growth” in the third quarter of this year following the disappointing 0.8 per cent contraction in the second quarter, Howard Archer, chief UK and European economist at IHS Global Insight, said.
He pointed to the fact that both output and new orders grew in July “at a pretty fair clip”, while the stock of finished goods fell sharply and the fall in manufacturing jobs, although substantial, was the slowest since June 2008.
“Nevertheless, it is important not to get too carried away by one survey, particularly as the CBI Industrial Trends survey for July showed a marked relapse in orders,” Mr Archer said.
“The suspicion remains that sustainable growth in the sector could yet prove elusive for some time to come.
“It needs to be borne in mind that overall GDP contraction of 0.8 per cent quarter-on-quarter was significantly weaker than the performance indicated by the manufacturing, services and construction purchasing managers’ surveys.”