Instant View - UK manufacturing grows slightly in January

LONDON Fri Feb 1, 2013 5:41pm GMT

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LONDON (Reuters) - Britain's manufacturing sector expanded modestly in January as output grew at the fastest pace since September 2011, driven by domestic demand, a survey found on Friday.

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- Highest output component since September 2011

- Highest employment index since February 2012

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ANALYSTS' COMMENTS

ROB WOOD, BERENBERG BANK

"Some good news on output growth ... but the underlying picture for me remains one that the UK economy is bouncing along the bottom, it's moving sideways.

"The survey showed export orders remained weak, for instance, and the overall PMI itself. So, some modest upside news on manufacturing output but question marks over how long that continues.

"It's likely to have little impact on (next week's BoE) decision. The BoE are essentially betting - or seem to be betting - all their chips on a boost to growth from the Funding for Lending scheme. And any signs of that aren't likely to be seen until the second half of the year in the growth figures.

"And with Mark Carney floating radical policy options almost every time he speaks, I think we may be in for a period of policy inertia."

ANNALISA PIAZZA, NEWEDGE STRATEGY

"The downward movement is fully justified by the current economic scenario. Indeed, the UK manufacturing sector remains under pressure due to poor foreign demand and no signs of solid improvement coming from domestic activity.

"In Q4 2012, the manufacturing sector has been the main drag for growth and we don't expect the overall scenario to have changed much at the turn of the year.

"That said, the UK manufacturing PMI has remained in expansionary territory for two straight months, a sign that the worst for manufacturing activity could be behind us.

"Less pressures from the euro area will help a modest increase in activity in 2013 and UK companies will probably start to increase their stocks and revise their investment plans."

BRIAN HILLIARD, SOCIETE GENERALE:

"Close to expectations, but the big surprise to me was the further gain in the already very, very strong output index. So that augurs well for the start of the year, especially when we had the snow, which normally is seen as an excuse for a poor output number."

"Having said that, the orders numbers are a bit soft, which means we shouldn't get too carried away about the outlook for the quarter as a whole."

PHILIP SHAW, INVESTEC

"The results are reasonably encouraging although the index has undershot the consensus number, it remains above the break-even 50 level and it chimes broadly with other surveys which are saying that manufacturing is getting back onto its feet again."

"Broadly the findings argue against the UK going into a triple-dip recession and most significantly offer hope that a more sustainable recovery might be in train."

"There are no big implications for next week's Monetary Policy Committee decision. If anything it reinforces our views that the committee will vote against more quantitative easing and keep policy on hold."

MIKE RIGBY, HEAD OF MANUFACTURING, BARCLAYS

"It's been a good start to the year for UK manufacturing with production and new orders holding well. The weakening of sterling against the euro should, on balance, benefit UK exports but it is clear the general outlook remains far from certain, both at home and in key export markets."

ROB DOBSON, MARKIT:

"A second consecutive month of improving business conditions in the manufacturing sector is an encouraging start to 2013.

"A small gain in employment suggests that firms are less focused on cost reduction amid signs of improved order books, which should lead to further production growth in February. Sterling's weakness, plus indications of firmer demand in key export markets such as the euro zone, notably Germany, and emerging markets such as China, should also help lift sales in coming months.

"However, with manufacturing only accounting for around 10 percent of the economy, the survey will do little to assuage fears of a triple-dip recession unless accompanied by an improvement in the services sector."

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