July 1, 2009 / 8:33 AM / 11 years ago

Factory PMI hits 13-month high

LONDON (Reuters) - Hopes that economy is emerging from recession got a boost on Wednesday from data which showed less of a decline in services and manufacturing activity, though doubts remain about the durability of any recovery.

Van seats rest on the LDV production line at their plant in Birmingham, May 15, 2009. REUTERS/Darren Staples

Britain’s main manufacturing survey, the CIPS/Markit manufacturing purchasing managers’ index, rose to 47.0 last month from 45.4 in May — the highest since May 2008 and just ahead of analysts’ forecasts for smaller improvement to 46.5.

Manufacturing output grew for the first time since last March, with an index reading of 52.1 up from 48.1 in May, though the overall index, which includes hiring intentions and other elements, still shows a modest contraction in overall activity.

For the bigger services sector, official data showed output fell at its slowest rate in six months, suggesting the worst may be over after a year of recession.

“At the very least, today’s numbers are consistent with the manufacturing sector being much less of a drag on growth in the second quarter,” said Colin Ellis, economist at Daiwa Securities.

“If the past improvement in the services PMI is sustained and maps into official data, (that) could mean the economy actually posts modest growth in the second quarter.”

The economy contracted at its sharpest pace in more than 50 years in the first three months of this year, but survey data have suggested a pick-up may be in sight.

Policymakers, however, have been reluctant to call the start of an upturn, warning that downturns in other countries and tight credit conditions at home pose big obstacles to growth.

The Bank of England has slashed borrowing costs to a record low of 0.5 percent and embarked on an unprecedented 125 billion pound programme to inject cash into the economy and rate-setters say this stimulus could take months to filter through.

And Wednesday’s figures have not altered the view the central bank will need to keep monetary policy loose for some time to come.

The Office for National Statistics said output in the services sector, which accounts for more than three-quarters of the whole economy, fell 0.1 percent in April — the smallest decline since last October.

In the three months to April output fell 1.2 percent, its slowest rate since December.

Economists said although this was encouraging news, it was unlikely that growth resumed in the second quarter, as some forecasters have predicted.

“I think we’ll be out of recession in Q3, but there are a lot of questions to be asked about how robust this recovery is going to be,” said George Buckley, economist at Deutsche Bank.

The PMI survey showed the new orders index rose to its highest since March 2008 and the export orders index also improved. The employment index also rose to show the slowest pace of job-shedding since last August.

But with other data showing corporate profitability weakened significantly in the first three months of this year, the prospects for investment and job creation are not good.

“The manufacturing sector is currently benefiting markedly from the substantial stock adjustment that has taken place,” said Howard Archer, economist at IHS Global Insight.

“Nevertheless, manufacturers still face serious obstacles and the survey fans suspicion that sustainable growth in the sector could remain elusive for some time to come.”

Editing by Andy Bruce/Ruth Pitchford

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