By Daniel Hunter

The UK manufacturing sector ended 2012 on a positive note, with levels of production and new orders rising at faster rates in December. The labour market also showed signs of stabilising, with employment broadly unchanged over the month.

The seasonally adjusted Markit/CIPS Purchasing Manager’s Index (PMI) rose back above the 50.0 no-change level in December, recording a 15- month high of 51.4. The average PMI reading in Q4 (49.5) was above that in Q3 (48.1), while the average over 2012 as a whole was only 49.2.

Manufacturing output increased for the second month running, with the rate of growth accelerating sharply to a 20-month high. The sharpest gains were reported by consumer and intermediate goods producers. There was also a modest increase incapital goods production following declines in the prior seven months.

Higher output mainly reflected improved demand from the domestic market. The total volume of new work received increased for the second month in a row, despite the level of new export orders contracting again. Overseas demand fell in every month of 2012 as conditions in the UK’s main export partner, the Eurozone, have generally remained subdued throughout this period.

Manufacturing employment declined for the eighth month running in December. However, the rate of job loss was negligible and the least marked for four months. Where a decline was signalled, this was linked to company restructuring, natural wastage and the non-replacement of leavers.

Signs of spare capacity remained present in the manufacturing sector during December, as highlighted by a further substantial decrease in backlogs of work. Levels of work-in-hand (but not yet completed) have contracted in each of the past 23 months.

“November’s figure surprised to the high side with the new order component in particular showing an encouraging increase, and it looks like the December number has continued that trend," Jeremy Cook, chief economist at foreign exchange company, World First, said.

"In fact, this reading puts the index at a 15 month high with both production and new order components accelerating higher. However, it’s a good start to a year that will see further pain for UK industry.”

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