UK Manufacturing returns to growth

UK manufacturing had the strongest growh for two and a half years in August according to a survey.

The latest Markit/CIPS purchasing managers' index (PMI) for the sector jumped to 57.2. A figure above 50 indicates expansion.

It marks the fifth consecutive month of expansion and is the highest reading since February 2011.

Output and new orders rose at their fastest rate for 19 years.

"The UK's factories are booming again," said Rob Dobson, senior economist at Markit.

"Orders and output are growing at the fastest rates for almost 20 years, as rising demand from domestic customers is being accompanied by a return to growth of our largest trading partner, the eurozone."

The one weak point in the outlook was a "marked upsurge" in cost inflation as commodity prices continued to increase.

In a separate survey, the EEF manufacturers' organisation said that it had ungraded its 2014 forecasts for manufacturing.

Lee Hopley, EEF chief economist, told the BBC: "Taken together with improving indicators across most parts of Europe the conditions are right for manufacturers to see continued expansion in the remainder of this year with growth accelerating in 2014."

Rob Wood, chief UK economist at Berenberg Bank said: "This is a consumer led recovery with legs. The improving export picture coming through in the latest surveys is the icing on the cake."


BBC Economics editor Stephanie Flanders commented that

"Today's PMI survey for UK manufacturing was the highest in more than two years and well above expectations. The output measure is now growing faster than at any time since the mid-1990s.

"It adds to a feeling that the second-quarter GDP figures were not a blip, and the manufacturing side of the economy is starting to pull its weight, not just in the home market but abroad as well.

"You'll remember the GDP numbers showed manufacturing output growing by 0.4% in the three months to the end of June, and city economists reckon it could do even better in the quarter we're in now.

"The more detailed breakdown for the second quarter also showed net trade was responsible for half of our growth overall, with exports rising more than imports.

"All of these things are good. So was the news - last month - that our trade deficit with non-European countries had almost halved in June.

"Economists at Citi reckon the UK's exports have risen by 182%, in cash terms, in the last 10 years - five times faster than the UK's exports to advanced economies.

"Within that, exports to China have risen six-fold since 2002, and exports to India are nearly five times higher. Goods exports to emerging markets now account for nearly a third of our goods exports, up from 17% in 2002.

"But, as the prime minister has pointed out, this progress is from a low base. Emerging markets still account for a much smaller share of exports in the UK than the European average. Let alone Germany."

Things are moving in the right direction. But we cannot afford any complacency.

Comments

Jim said…
I am still not so sure on this one. Personally I think this "recovery" is nothing but a symptom of QE and "money creation". I am not convinced there is any "Real" growth.
Without more QE (which would be disasterous), then the general poplulation soon discovers that the pensions they have, are not there at all.

I can understand people see evidence of a recovery, but i think this is more wanting to see it rather that seeing what it is.

I really don't like being the forecaster of doom so often, its just i think its better to face these problems now, rather than kick the can down the road, creating an even bigger (not too distant) future problem.

How would i suggest facing these problems. 1 cut government spending, 2 Raise interest rates, 3 dont prop up an inflated property market, let the house prices fall back to normal levels

Now i dont think we will see any of this, for as the 3 steps above are very good for the long term economy, they will be very painful in the short term, thus its not exactly a good plan if my main concern is not the economy, and all I really want to do is get elected in 2015.
Jim said…
i can also explain why each of my 3 points would help.

1- if you dont earn it then how can you spend it? its not yours you only can do this through borrowing, and that is only robbing from future generations, sure you can create a boom in area, but then you must cut when the boom is over, you cant go on with boom level spending in a bust environment

2 - debt is the underlaying problem, thus if interest rates raise as they should do under the free market, then borrowing is discouraged and saving encouraged, lowering the rate at which the current problem is increasing

3 - First time buyers need help onto the property market only because property is over valued and is being held up by governments, if i make it really clear that you can borrow interest free 20% of a house price for a deposit, then which way will this send house prices, of course the answer is upwards, when they have needed to come downwards for so long.
simple way to explain - if i know you only have 10p then i will probably sell you an apple for 10p from my apple tree, but if i know you have 50p and you can access easily another 20p then i am going to ask 70p for an apple arn't I?

Law of supply and demand, now i may get into a debate because next door will sell you an apple for 69p, but i just cut my price to 65p, never anywhere near the 10p apples should cost.

As an economist you must see these simple o level facts Chris
Chris Whiteside said…
Some of the recovery is "demand led" as a result of consumer spending and it is entirely possible that part of this is due to QE - indeed, boosting demand to encourage a recovery is precisely what QE was intended to do.

However, more than half of the increased demand we are seeing is due to an increase in net exports, particularly to China, India, and emerging markets. That isn't due to QE and if sustained it is very good news as it means the recovery will be more broadly based.

I agree with you about government spending, and, in the medium term, on interest rates.
Jim said…
the ting that gets me about all of this is you dont need to stimulate demand, demand is there if you are selling a good product.

As a father i am sure you have taken your kids to toys R Us before. Now you see your five year old wants, this and this and this and that and this, and thats awesome one of them, and this............etc

The problem of course comes at checkout time, you can only afford one or two of the items, so you have 2 choices the first is you tell the five year old to put all but 2 of the items back on the shelf, the second choice is you pull out your credit card.

Option 2 may seem like a good idea at the time, but when the bills start coming in perhaps its not exactly brilliant.

Option 1 is your best bet

Though you never at any point had to stimulate the demand from your child

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