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Instant view - UK manufacturing grows less than forecast - PMI
March 1, 2012 / 9:49 AM / 6 years ago

Instant view - UK manufacturing grows less than forecast - PMI

LONDON (Reuters) - Britain’s manufacturing sector grew in February, albeit at a slower pace than in the previous month, raising chances the sector will be a driver of growth for the overall economy in the first quarter.



”What a difference a month makes, with manufacturing output in particular jumping by 12 points in February.

”The conversations we are now having with manufacturers are also far more positive, particularly in the mid-large corporate space.

”Private equity is becoming more active in the sector and there is greater talk of M&A amongst industrial companies in the


”However, there is still a divide in the manufacturing sector between SMEs and large caps, between purely domestic players and exporters and to a certain extent between north and south.

“Until we see UK domestic demand really gaining traction, there is still going to be a part of the sector in which recession remains a reality.”


”I think it was a tiny bit disappointing, the fact that it fell almost one point. But you have to see it in the context that it rose 4 points over past 2 months, so it is a small payback. It’s far from a disaster.

”It is a cautious recovery of the manufacturing sector, nothing spectacular, a modest pace of expansion which we expect to last for most of this year.

”The service sector carries more weight, Monday will give us more clues for overall economy. We see a decent expansion of GDP

in Q1.

“For the BoE, given euro zone improvement and the comments from Martin Weale last night, it suggests to me that the round of QE expiring in May was the last one. QE is an emergency measure and we are not in an emergency anymore.”


”February’s CIPS report on manufacturing is the first tentative sign that the industrial recovery might be starting to falter. On the basis of past form, the output balance now points to virtually zero quarterly growth in manufacturing output.

”What’s more, both the overall and export orders balances fell to just below the 50 mark, suggesting that the sector may continue to stagnate in the near term.

”We would be reluctant to conclude that the manufacturing recovery has run out of steam just yet - after all, the CBI’s survey last week suggested that output has continued to expand at a brisk pace.

”And even if growth paused in February, the sector remains on course to make a small but positive contribution to overall GDP growth in Q1.

“But at the very least, today’s survey suggests that it would be unwise to think that the economy is definitely getting back to business as usual.”


”Overall, given the headline index remains above the break-even 50 level, the report offers hope that the UK can avoid a technical recession after the economy shrank 0.2 percent in the fourth quarter of 2011.

”However, it is going to be a bumpy ride. Indeed, weak consumer fundamentals, tight credit conditions, fiscal austerity, geopolitical instability and strengthening sterling amidst the ongoing crisis in the euro zone suggest to us that the risks to growth remain skewed to the downside.

“While some MPC members have been playing down the prospects of further QE, we still feel they may be forced to act again later in the year.”


”The outturn this month has fallen a little bit short of expectations, but if anyone a couple of months ago had said ‘would you like the manufacturing PMI at 51.2?', the markets would have taken that.

”So it does look as if the manufacturing sector is expanding and that does help to confirm that the downside risks facing the economy have abated.

”It’s interesting that there has been a strong increase in the input prices index - obviously reflecting the stronger worldwide commodities background.

“That is likely to be a big talking point on whether we are likely to get more QE later on in the year.”



(Previously announced data in brackets)


Manufacturing headline index 51.2 52.0 (52.1) 50.0 51.8

New orders index 49.9 51.6 (52.2) 49.9

- Headline activity index dips from January’s eight-month peak

- Output growth slows

- New orders steady

- Input and output prices rise at the fastest pace since September

- Backlogs of work continue falling


Reporting by London bureau

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