UK factories enjoy stronger growth in February but exports fall
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Version 0 of 1. British manufacturers enjoyed a pickup in business last month but they relied on domestic demand as exports fell against the backdrop of a troubled eurozone and stronger pound. A closely watched survey showed factories continued to enjoy a bounceback after a slow finish to 2014. But details showed little progress in the government’s push to rebalance the economy away from over-reliance on domestic consumer demand. The main balance rose to a seven-month high of 54.1 in February’s Markit/CIPS UK Manufacturing PMI. That was up from 53.1 in January and well above the 50-mark that separates expansion from contraction. It was also higher than the 53.4 consenus forecast in a Reuters poll of economists. The report showed manufacturers continued to add jobs to keep up with rising demand from UK-based clients. But export orders fell as a stronger pound made UK goods more expensive for some foreign buyers and as worries about deflation and Greece’s debt deal continued to weigh on confidence in the UK’s key market, the eurozone. Surveys from the same compiler on eurozone manufacturers earlier on Monday showed the manufacturing sector in the currency bloc only posted a little growth in February. The UK report also fanned fears that the UK economy could lose steam later this year and the makeup of demand echoed official data last week showing investment spending fell at the fastest rate in almost six years at the end of 2014. The manufacturing report showed some help for factories from falling costs as the sharp drop in oil prices in recent months continued to filter through to them. Manufacturers also cut the prices they charged for their products for the second month running. Rob Dobson, senior economist at Markit, said the survey reinforced a picture of a broader revival in the UK at the start of the year. It also suggested job creation for manufacturing is running at a rate of 5,000 new positions filled a month, he said. But he added: Scratching beneath the surface and we see a lopsided upturn, with the prime driver being a strong upsurge in new orders and production at consumer goods producers while a near-stalling of demand for plant and machinery points to ongoing weak business investment. Separately, the appreciation of sterling is holding back the progress of UK exporters. It seems that, despite years of talk about a rebalancing of growth, we are still seeing only limited headway in moving away from consumer-driven expansions and towards a greater contribution from exports. The coalition has argued that in order to secure a sustainable future, the UK economy must rebalance away from debt-fuelled consumer spending and towards more manufacturing and exports. However, little progress has been made and the British Chambers of Commerce believes the chancellor’s target set in 2012 to double UK exports to £1tn by 2020 looks out of reach. But manufacturers have appeared relatively upbeat in recent surveys. The PMI report follows a poll earlier on Monday from the manufacturers’ organisation EEF suggesting the sector had enjoyed a strong start to the year. Export orders were growing and some firms reported a pickup in demand from European customers. The survey of 400 firms from the EEF also suggested that investment plans continued to look robust and more small and medium-sized firms were expecting to hire in the next quarter. Manufacturing makes up only a tenth of the UK economy and so analysts are waiting for the PMI survey on the dominant services sector out on Wednesday to get a better read on overall growth. Alan Clarke, an economist at Scotiabank, said Monday’s report was an encouraging start. Services should presumably do even better since the consumer is facing a windfall from lower petrol and food prices which is likely to be spent. It’s a bit like winning a lottery scratch card rather than a euro millions payout but the point is it’s a positive and should help push the pace of quarterly GDP [growth] upwards over the course of the year. |