UK manufacturing rises as export orders expand

13:32, June 02, 2010      

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British manufacturing activity held steady in May at the previous month's 15-year high, a survey showed yesterday, but the recovery outlook was clouded by signs of accelerating price pressures.

The Markit/Chartered Institute of Purchasing and Supply manufacturing PMI was unchanged at 58.0 in May, slightly above the 57.8 consensus forecast. It has been above the 50-mark, which indicates growth, since July 2009.

Manufacturing output increased for the 12th consecutive month, although the growth rate eased slightly for a second month.

Britain's coalition government, formed after an inconclusive election on May 6, may take some comfort from the figures as it tries to secure the recovery from an 18-month recession that ended in late 2009.

Prime Minister David Cameron has said he wants to rebalance the British economy, with a greater emphasis on manufacturing and the private sector. His government will set out spending plans on June 22 in an emergency budget expected to explain how it will try to cut the budget deficit.

The survey showed a further robust increase in new orders, with the rate of expansion remaining close to April's six-year high. Export orders rose for a ninth consecutive month as firms continued to benefit from a competitive exchange rate.

"UK manufacturing maintained its blistering start to the second quarter," said Rob Dobson, senior economist at Markit. "Although production remains well below pre-recession levels, the sector is now recovering its losses at a surprisingly rapid pace."

The monthly survey of 600 industrial companies showed average purchase prices in May rose at the fastest rate since August 2008, extending a nine-month run of gains. Factory gate price inflation, meanwhile, rose at the fastest rate since September 2008.

The Bank of England maintains that the recent spike in inflation will prove temporary, but some members of the monetary policy committee are growing nervous this assessment may be too optimistic.

Consumer price inflation jumped to a 17-month high of 3.7 percent in April, almost double the bank's target.

The survey showed the rate of jobs growth eased from April, although it was still close to that month's three-year high. Improved demand from China, Europe, the United States, Africa and the Middle East boosted new export orders. However, their rate of growth was also slightly down from April.

While strong export growth and robust domestic demand have helped British manufacturers this year, the outlook is far from certain, Markit's Dobson said. "Austerity measures may cool home demand, while export sales may be hit by the sovereign debt crisis."



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