UK manufacturing grows for first time in 16 months

Britain's manufacturing sector grew for the first time in 16 months in July, according to a survey from the Chartered Institute of Purchasing & Supply (CIPS).

The CIPS manufacturing purchasing managers' index rose to 50.8 last month from an upwardly revised 47.4 in June, the first time the number has been above the 50 level that divides contraction from growth since March last year.

July's figure was well above expectations of a rise to 47.7 and marks a sharp rebound from the record low of 34.9 set in November.

After the data, sterling rose 1.25 cents to a nine-month high against the dollar of $1.8639 and a one-month high of 84.77p against the euro. September gilt futures also extended losses to their day's low.

David Noble, CIPS chief executive, said: "The manufacturing sector has clearly pulled out of the nosedive it was in earlier this year and is no longer plummeting."

He said customers slashed inventories so severely in the downturn that they were now in need of new stock in order to meet improved sales. New orders jumped to 55.9 from June's 49.8, its highest level since November 2007 and the first time orders have risen since March last year.

Although the CIPS survey adds to evidence that Britain's economy is over the worst of the recession, Mr Noble warned it was still early days and smaller firms continued to bear the brunt of the recession.

The research also found manufacturing employment declined for the fifteenth month running in July, although the rate of decline was the slowest since June last year.

Howard Archer, an economist at IHS Global Insight, said the competitive pound was helping the sector by making UK manufacturers stronger in their domestic markets as well as by helping exporters.

However, he sounded a note of caution, particularly as the CBI industrial trends survey for July showed a marked relapse in orders: "Manufacturers still face serious obstacles and the suspicion remains that sustainable growth in the sector could yet prove elusive for some time to come.

"While leaner stocks and a more competitive pound have improved their position, manufacturers are still battling against muted domestic demand, difficult conditions in overseas markets and intensified competition."

Economists said the discrepancy with official data meant that the PMI data needed to be treated with care.

"We need to be cautious about reading too much into the PMIs of course because we have seen a fairly marked pick-up in the PMIs over recent months and yet the Q2 GDP out-turn was quite a bit weaker than expected," said Adam Chester, economist at HBOS, told Reuters.

Companies reported restarting production they had stalled during the depths of the recession earlier in the year, with large firms expanding output faster than smaller ones.