Manufacturing growth at 15-year high as factories cash in on sterling’s weakness

by The Times - 05/05/2010

"Activity at British factories has soared to a 15-year high, boosting hopes that the economic recovery is gathering speed."

Manufacturers said that export orders reached record levels last month as sterling’s weakness and reviving economies overseas helped to boost orders from China, Europe, the United States and the Middle East.

Employment growth in the sector also surged to the highest level in more than three years, according to the Purchasing Managers’ Index index produced by the Chartered Institute of Purchasing and Supply and Markit. The headline PMI reading of factory activity rose to 58 in April, up from 57.3 in March. Any figure over 50 indicates rising activity.

Rob Dobson, senior economist at Markit, said: “Manufacturers reported a flying start to the second quarter. The feeding through of rapid output growth to job creation is particularly good news.”

But the good news on one front yesterday was tempered by bad news on another. Separate data from the Bank of England showed that net mortgage lending fell by more than 80 per cent to £300 million in March, down from £1.8 billion in February. Mortgage approvals for house purchases rose by 2,019 to 48,901, but this was well below the six-month average of 54,201.

Such unease in the housing market could hamper recovery, experts said. Vicky Redwood, senior UK economist at Capital Economics, said: “The continued weakness of housing market activity highlighted just one of the ways in which the recovery is built on fragile foundations.”

There are also worries that a lack of credit could hamper the turnaround in manufacturing, with the Bank’s gauge of the growth in M4 lending to private financial corporations dropping to -3.9 per cent, the lowest level recorded since 1997. There was better news for the Bank’s Monetary Policy Committee as its preferred measure of M4 money supply — which it monitors to judge the effect of its £200 billion scheme of quantitative easing — rose by 1.1 per cent in March, up from a 0.4 per cent rise in February.

The MPC may be concerned about indications of rising inflationary pressures, as the PMI figures showed a sharp rise in factory prices. The growth in the cost of raw materials and overheads at factories gathered pace in April, with the index rising to a near-two-year high of 73.8, up from 68.4 in March. This helped to push the gauge of output prices to 58.6, up from 55.3.

GDP rose by 0.2 per cent in the first quarter of the year, after a 0.4 per cent rise in the final quarter of last year, recent official figures showed.

There was added evidence of an upturn in inflationary pressures as the British Retail Consortium said that rising oil prices helped to push shop price inflation to 2 per cent in April, up from 1.2 per cent in March. But Stephen Robertson, director-general of the BRC, said that shop price inflation, which has swung from -0.1 per cent to 2.3 per cent over the past year, could be more stable in the coming months: “With commodity prices going up, food prices were almost bound to rise ... but the main effects of rising costs and the weak pound have now been felt,” he said. “With demand still weak, shop prices should be more stable in future months, as long as there are no more big shocks.”

Food price inflation rose to 2 per cent in April, up from 1.2 per cent in March, while non-food inflation also rose to 2 per cent, from 1.3 per cent.

More Details: http://business.timesonline.co.uk/tol/business/economics/article7115456.ece