The first sign that British industry may have passed the deepest point of the recession came yesterday with a sharp improvement in the Purchasing Managers Index for March.
The least bad overall reading since last October was accompanied by a record fall in stocks of both purchases and finished goods.
Manufacturers, particularly large companies, continued to cut their workforces, but at a much slower rate, the first time the pace of job losses in industry has moderated since last April.
The headline PMI, compiled by the Chartered Institute of Purchasing and Supply and Markit Economics, picked up to 39.1 from a deeply depressed 34.9 in February, on a scale where anything under 50 indicates a decline.
Order books continued to decline for the 13th month in a row – longer than any time since the CIPS started this survey in January 1992, deep in the last recession.
Output fell for the 11h month running. But in both cases the rate of decrease was perceptibly slower than in February.
New export orders fell for a tenth month. Companies reported lower demand from continental Europe, Ireland and East Asia. But again the rate of decline was slower than in February. Some companies indicated the weak pound was mitigating some of the worst effects of the global downturn on exports.
“PMI indices for output and new orders approached levels seen just before the global recession took its deepest plunge and nosedived around the time Lehman Brothers collapsed,” said Roy Ayliffe, director at the CIPS.
“Coupled with this, March probably saw firms dismiss staff at a lower rate of around 20,000 to 25,000 a month – considerably less than the 30,000 in January.
Mr Ayliffe stressed though, that output is still falling and demand is still weak.
He said: “We are not out of the woods yet. If anything, the latest data serves to highlight how badly the sector was faring around the turn of the year.”
Rob Dobson, senior economist at Markit Economics, described the substantial gains in the indices for output and new orders as heartening, raising hopes, if these can be sustained, that manufacturers are past the worst.
But he added: “We are still a long way off levels associated with an outright recovery and conditions remain fragile overall.
“Cost-cutting and restructuring are still at the forefront of manufacturers’ minds, with latest PMI data pointing to historically rapid reductions in employment and unprecedented unwinding of inventory positions.”
Howard Archer, chief UK and European economist at IHS Global Insight, described the survey as “significantly better than expected, providing some rare relief after the recent extended stream of woeful manufacturing data and survey evidence”.
He noted, though, that the CBI’s industrial trends survey for March had been extremely weak.