CIPS/Markit survey reveals six-month surge for UK economy despite export slump reducing activity since August
Britain’s bumpy recovery has reasserted itself following a fall in factory output growth during September, according to the latest CIPS/Markit survey.
The manufacturing sector continued to expand, prolonging a six-month period of improvement, but Markit’s index of activity shows output fell back to 56.7 from the previous two-and-a-half year high of 57.1 in August. A figure above 50 indicates expansion.
The main drag on the sector’s growth was a slump in export growth as new orders fell to 52.7 from 54 in August. By contrast, domestic orders powered ahead at 59.3, below August’s 61.5, but higher than July’s 58.3.
Employment kept up its expansionary trend in September, improving on August and maintaining a period of jobs growth that dates back to April.
Markit’s survey showed that all manufacturing industries, besides textiles and clothing, saw some increase in foreign demand over September both from developed markets and emerging economies.
Employment and input prices rose at their fastest pace in two years.
Lee Hopley, chief economist at EEF, the manufacturers’ organisation, said: “This is another solid month for manufacturing with output, orders and employment all up, paving the way for a decent quarter of growth across the sector. The good run of indicators should continue beyond the end of this year with some expansion in manufacturing taking place in Europe, Asia and the US.
The economic thinktank, the CEBR, said: “This was the fifth consecutive month during which employment has risen in the manufacturing sector. The staffing-level recovery was broad-based, as payrolls increased across all manufacturing industries, besides timber and paper.
“Overall, rising employment in the manufacturing sector has the potential to decrease the UK unemployment rate – which still stood at an elevated 7.7% over April-June 2013 – or at least mitigate the effect of public sector payroll reductions,” it said.
However, Hopley said the sector faced headwinds that could restrict its expansion in the coming months.
She said: “Ramping up production to meet growing demand given the persistent weakness in investment is one. A second concern is inevitably that the positive outlook globally will be sustained.”
Analysts said an appreciation in the pound in recent months, making exports more expensive, was also likely to be a cause of the slowdown in export sales.
Alan Clarke, UK economist at Scotia Bank, said: “The latest Markit survey could be a blip in an otherwise upward sloping trend because recoveries are seldom a straight-line affair.
“Alternatively, this could be the first sign that the near 5% appreciation in the effective sterling exchange rate is starting to be a dampener on the export facing part of the recovery.”
An improving picture across the continent could also act to bolster demand for British exports.
The Markit purchasing managers’ index for the eurozone showed expansion at 51.1 in September. Though down on August’s 26-month high of 51.4, the survey points to continuing expansion after a long period of recession.
Unemployment across the 17 eurozone countries also indicated some stabilising
Eurostat, the EU’s statistics office, said the unemployment rate was 12% in August, unchanged from the previous month and down modestly from the 12.1% peak recorded in the summer. In total, the number of unemployed people dipped by 5,000 to 19.18 million.
Few economists think the eurozone’s current economic growth is enough to significantly bring down unemployment, particularly among the young. The manufacturing PMI survey, for example, showed companies in the sector still expect modest job losses.
“Unemployment looks set to fall only very gradually at best,” said Ben May, European economist at Capital Economics.
The Eurostat figures mask huge divergences across the eurozone. While Germany has an unemployment rate of 5.2%, Greece and Spain have over a quarter of their workforce out of a job.
The situation among the young is even more acute. Greece and Spain, for example, have over half their under-25s unemployed. In Greece, where the latest figures available were for June, youth unemployment stood at 61.5%.
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