Bloomberg News

U.K. Factory Gauge Rose to Eight-Month High in January

February 01, 2012

(Updates with CIPS comments in fourth paragraph.)

Feb. 1 (Bloomberg) -- A U.K. manufacturing index jumped to an eight-month high in January and unexpectedly returned to growth after a quarter of contraction as production rebounded.

The factory gauge, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, rose to 52.1 from a revised 49.7 in December, Markit said in a report on its website today. The median forecast of 28 economists in a Bloomberg News survey was for a reading of 50, the level that divides expansion from contraction.

Separate reports today showed manufacturing indexes for Europe, China and India also rose in January. Still, the debt crisis in the euro area, the U.K.’s biggest export market, has dimmed the outlook for manufacturers, and Bank of England Governor Mervyn King said last week that policy makers can increase stimulus again if needed to aid the economy.

“The U.K. manufacturing sector has sprung to life in the first month of 2012 to defy any economic gloom, but it is too early to say whether this trend is sustainable,” CIPS Chief Executive Officer David Noble said in the report. “The boost in output is also welcome, but in reality is bolstered by manufacturers working through existing backlogs, which can only be a short-term fix.”

Global Indexes

A manufacturing gauge based on a survey of purchasing managers in the 17-nation euro region rose to 48.8 from 46.9 in December, London-based Markit Economics said today. The official Chinese purchasing managers’ index increased to 50.5 from 50.3 in December. The data may have been distorted by a weeklong holiday. A separate Chinese gauge from HSBC Holdings Plc and Markit Economics rose to 48.8. India’s manufacturing grew at the fastest pace in eight months.

The U.K. economy shrank 0.2 percent in the fourth quarter as manufacturers cut output and services stagnated, leaving Britain on the brink of another recession.

The IMF last week cut its 2012 British growth forecast to 0.6 percent from 1.6 percent as it predicted a mild recession in the 17-nation euro zone and slowing growth in China. Ernst & Young says the U.K. economy may contract again in the current quarter, marking its first double-dip recession in more than three decades.

Factory output, which accounts for about 10 percent of U.K. gross domestic product, contracted 0.9 percent in the fourth quarter, the biggest drop for more than two years, official data on Jan. 25 showed.

Growth Outlook

“We believe that the U.K. will avoid recession and post some positive, if moderate, growth” in the first quarter, David Tinsley, an economist at BNP Paribas SA in London, said in a note. “Today’s number supports our view.”

Fenner Plc, the world’s largest conveyor-belt maker, said on Jan. 11 that there is “uncertainty over the global economic outlook” and predicted sales growth rates will slow.

With the government constrained by its pledge to all but eradicate a budget deficit of 9 percent of GDP, pressure is growing on the Bank of England to expand it 275 billion-pound ($434 billion) bond buying program when the current round of purchases ends this month.

--With assistance from Mark Evans in London. Editors: Craig Stirling, Andrew Atkinson

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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