By Marcus Leach
The UK manufacturing sector started 2012 on a positive footing with output expanding at the fastest pace since last March, new orders rising following a period of contraction and payroll numbers stabilising.
With fear of a double-dip recession aired last week the latest British Manufacturing PMI data has been warmly welcomed.
“Most of the preliminary 0.2% fall in UK Q4 GDP was as a result of a fall-off in output from the manufacturing sector, although this was seen to improve as the quarter went on," Jeremy Cook, chief economist at foreign exchange company, World First, said.
“Today’s manufacturing number can be seen as the first real indicator as to how 2012 has started.
“It would be fair to say that consumer spending will drop between December and January, as the public pay down debt from an expensive Christmas.
“With a stable consumer sector (at best), we needed manufacturing to come back to the party or we would have been staring down the barrel of an, albeit very shallow, double-dip recession.
“This growth needs to be maintained throughout the quarter, but with new orders rising at fastest pace since March 2011, the signs are very positive.”
Ms Lee Hopley, Chief Economist at EEF, the manufacturers’ organisation said that whilst the sector needs to maintain the positive growth, this goes a long way to easing fears that the sector was sliding backwards.
“The one positive for manufacturing from last week’s GDP data was that output expanded modestly in December, with growth appearing to have continued into the New Year indicating modest expansion in the sector," Hopley said.
"Whilst this is not a return to the strong growth seen earlier in the recovery it is a rebuttal to fears that manufacturing is sliding backwards with the mood in the sector being one of cautious optimism.”
Philip Hoey, Senior Manager at Caxton FX, said that despite initial gains following the positive manufacturing data, sterling lost ground as investors remained cautious before the remaining PMI figures are announced this week.
“Any figure above 50 reflects growth in the sector,” said Philip Hoey, Senior Manager at Caxton FX.
“Consequently, sterling strengthened against both the euro and the US dollar following the announcement as investors speculated that Britain could narrowly avoid a double dip recession if other PMI figures follow a similar trend.
“However, the pound began to lose ground following its early gain as risk appetite waned and investors remained hesitant to make any significant bets on sterling ahead of the construction and services figures due to be announced this week.
“Nonetheless, Construction and Services PMI figures are both likely to reveal further growth in those sectors and we believe they could well follow the manufacturing data, leading to further gains for the pound.”
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