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LONDON (Reuters) - Britain's manufacturing sector again expanded modestly in January, raising hopes the economy can avoid a new recession, although activity grew less than a month before and was below expectations.
Factory output, however, grew at the fastest pace since September 2011, the survey published on Friday showed. Lower factory output was a key reason for a contraction in the last quarter of 2012 which left Britain's economy within sight of its third recession in four years.
The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) inched down to 50.8 from a downwardly revised 51.2 in December. That was just short of forecasts for a reading of 51.0 but for a second month running was above the 50 level that separates growth from contraction.
"Broadly the findings argue against the UK going into a triple-dip recession, and ... offer hope that a more sustainable recovery might be in train," said Philip Shaw, economist at Investec.
Others were more cautious, noting that new orders hardly grew, tempering optimism about the first quarter of 2013.
Rob Dobson, the Markit economist who compiled the survey, said the wider impact of manufacturing's January expansion would be limited as the sector accounts for only about 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," he said. Markit's January services sector PMI will be published on Tuesday.
In a clear sign of faster output growth, the PMI component measuring the change in factory output from the previous month climbed to 54.2 from 53.4 in December, despite a reported hit from poor weather.
"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," Dobson said.
For now, companies said weak demand from continental Europe was behind the 13th consecutive drop in new export orders.
In further good news for the economy, government data showed that the number of companies which went into liquidation in England and Wales in the last three months of 2012 fell to its lowest level since the second quarter of 2008.
Markit said production of consumer goods grew robustly last month and output of intermediate products such as car engines also rose. But manufacturing of investment goods such as factory equipment declined.
Employment in factories ticked up, in contrast to the job losses that afflicted the sector for much of 2012.
Solid input price inflation continued to eat into manufacturers' profit margins, however, as the prices they charged rose by a smaller margin. Firms reported higher costs of chemicals, energy, food products, metals, packaging and plastics.
Additional reporting by Li-mei Hoang and David Milliken; Editing by Catherine Evans