March 1, 2010 / 10:33 AM / 10 years ago

Feb factory growth holds at 15-year high

LONDON (Reuters) - The manufacturing sector expanded faster than expected in February, matching the previous month’s 15-year high rate of growth and suggesting the economic recovery may be gathering pace, figures showed on Monday.

The CIPS/Markit manufacturing purchasing managers’ index held at 56.6 last month, the same level as January, which was the strongest since October 1994. The index has now held above the 50.O mark, separating expansion from contraction, for five months.

Analysts had expected a reading of 56.1 in February.

The result came hard on the heels of a survey by the Engineering Employers Federation which showed output returned to growth at the start of 2010 for the first time in more than a year.

“This bodes well for a good first-quarter GDP figure, but we need to remember that manufacturing is still a small part of the UK economy,” said James Knightly, an economist at ING.

“Consumer spending, which makes up around two-thirds of the economy, remains soft.”

The detail of the PMI report showed manufacturing output rose for a ninth month in a row, hitting its fastest rate of growth since September 1996 with an index score of 59.8.

And there was more encouraging news for policymakers looking for a weaker pound to boost the competitiveness of British manufacturing in overseas markets. New export orders grew at the fastest pace since the survey started including such data.

“The PMI survey suggests that the good news provided by the surge in output reported by the Office for National Statistics in December will have continued in early-2010,” said Rob Dobson, senior economist at Markit Economics.

“Even more encouraging are the growing signs that business-to-business and investment spending are recovering, which points to a more sustainable and broad-based recovery.”

Official data on Friday showed the economy grew by 0.3 percent in the final quarter of 2009, ending an 18-month recession and three times stronger than an initial estimate.

Manufacturing makes up about 13 percent of the overall economy.

The Bank of England, which has cut interest rates to a record low of 0.5 percent and unleashed a 200 billion pound asset-buying scheme to boost growth, expects a slow recovery and is particularly concerned about a continued dearth of credit.

The central bank also expects an initial spike in inflation to subside, leaving the consumer price index well below its 2 percent target in two years’ time.

While the Bank thinks the downside risks to growth currently outweigh the upside risks, there is a chance that inflation could turn out stronger than expected.

The PMI survey showed both input price and output price growth accelerating in February to rates not seen since late 2008.

Editing by Susan Fenton

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