New Year optimism as sector returns to growth

The latest purchasing managers’ index (PMI) reveals that factory activity hit a 15-month high in December.

Levels of production and new orders expanded at accelerated rates, according to survey compiler Markit.

The figures were far stronger than expected and offer “genuine hope” for the sector in 2013, according to economists.

In Yorkshire, firms say they are benefiting from a resurgence in the domestic oil and gas sector – which invested £10bn last year – and demand from premium brand automotive manufacturers.

Andy Tuscher, regional director at EEF, urged businesses to “capitalise” on their success in Scotland’s offshore fields and “start pushing the exports”. Mr Tuscher added: “You can’t just rely on domestic markets.”

Automotive is another key sector for Yorkshire manufacturers. Mr Tuscher said: “We have some companies that are reporting record years. Conversely, others are doing appallingly.

“It depends on what market they are in. If you are supplying to Jaguar Land Rover, BMW and Mercedes, you are doing well.

“If you are supplying to Peugeot Citroën, you are doing badly.”

High-end manufacturers tend to be doing better than low cost, mass producers, according to the Company of Cutlers in Hallamshire.

George Kilburn, chief executive, said: “This has been the case for some time, but there will always be bumps in the road.

“In general terms, there is improvement [in manufacturing]. The greatest improvement is in high quality, innovative manufacturing.”

He also highlighted the difficulties facing suppliers to the European automotive sector. “For a lot of people we are still not out of the woods,” said Mr Kilburn.

Yesterday’s PMI showed the level of export orders fell again in December, capping a miserable year for UK exporters.

Markit said overseas demand fell every month in 2012. It blamed the weakening demand on the crisis-hit eurozone, the UK’s main trading partner.

The PMI revealed that manufacturing output increased for a second month, with the rate of growth accelerating to a 20-month high.

Markit said most of the rise was due to improved demand in the domestic market.

Rob Dobson, senior economist, said: “UK manufacturing exited 2012 on a positive note, with December’s PMI data signalling a reassuringly solid return to growth for the sector.

“However, this does little to change the view that the sector contracted over the fourth quarter as a whole.

“The domestic market remained the main spur for growth of production and new orders in December, although there are also signs that global trade flows are stabilising as China and the US strengthen and the downturn in the eurozone eases.

“If the recovery in overseas markets continues to build at the start of 2013, this would be of major benefit to UK exporters.” Tom Vosa, economist at Yorkshire Bank, said the global economy reached its low point in October.

He added: “A bounce in China and further progress on sorting out the eurozone sovereign debt crisis have both conspired to boost activity.”

Rob Wood, economist at Berenberg Bank, said: “The sector seems to be showing some signs of improvement. But the big picture is that the UK economy has been bouncing along the bottom over the last year. Today’s figures point to stabilisation rather than a return to growth.”

Manufacturing makes up just 10 per cent of British output, so construction and services PMIs due today and tomorrow will give a stronger guide to the health of the economy as a whole.

In a note to investors, Mr Vosa said the UK’s underlying economic activity looks to be “around flat”.

The PMI also raised the spectre of further price rises as the rate of increase in input price inflation reached a nine-month high.

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