Manufacturers gave the Government some badly-needed economic news today with figures showing the sector grew in January at its fastest pace since records began in 1992.
New orders and employment in manufacturing – both key indicators – also rose at their quickest recorded pace, painting a brighter picture than last week’s gloom-laden GDP figures, which showed the economy contracted by 0.5 per cent in the final three months of 2010.
However, today’s manufacturing figures from the Markit/CIPS manufacturing Purchasing Managers’ Index (PMI) also reveal that factory costs surged last month – a further sign that price pressures are building in the economy, which in turn could force the Bank of England to raise interest rates sooner than previously forecast.
Economist Ross Walker of RBS said: “We’ve got a marked acceleration in growth in the industrial sector and it does suggest that there is some significant underlying strength in the economy, although the services number is the one that really matters.
“It brings forward the risk of a rate rise sooner rather than later and brings February into play as a possibility.”
However, the weak housing market may stop the Bank from raising rates. Mortgage approvals fell more than expected in December to their lowest since March 2009, according to official figures also released today.
Reacting to the PMI, Louise Fleming, head of South West, Barclays Corporate said: “These figures are unprecedented and should bring the Government some cheer. But while manufacturing continues to outperform the wider economy, it is by no means immune from diving consumer confidence, languishing house prices and a struggling service sector.
“The question for manufacturers is how to grow significantly in a persistently low to no-growth UK economy, particularly those businesses primarily focused on the domestic market. The Chancellor is right in that investment must be a key element of generating growth across the economy, and manufacturers will be hoping for meaningful incentives to encourage them to invest in next month’s Budget.”
