March 3, 2014 6:41 pm

UK manufacturing activity increases for 11th month in a row

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Hopes of a rebound in UK manufacturing have been boosted by a run of positive survey data but flat bank lending, high energy costs and skills shortages are still holding the sector back.

The Markit purchasing managers’ index for February saw manufacturing activity increase for the 11th month in a row. But separate figures from the Bank of England revealed only a mild uptick in loans to manufacturing businesses of £100m in January, with the trend over the past year still negative, at -2.2 per cent.

Moving in the right direction

Moving in the right direction

By contrast, consumer lending continued to rise, with mortgage approvals hitting a six-year high.

Manufacturing accounts for just a tenth of the UK’s economic output, but is vital for the government’s ambition to rebalance the UK economy away from consumption and services.

The government wants to double UK exports to £1tn by 2020 and Vince Cable, business secretary, would like to raise manufacturing’s share of output “up to the mid-teens” over the next five to 10 years.

But the sector’s output remains about 9 per cent below its pre-crisis peak, while overall GDP is 1.4 per cent below. Other obstacles in the way of a full manufacturing recovery include high energy costs and a chronic skills shortage.

Companies and politicians, including Mr Cable, will grapple with the issues on Tuesday at the EEF manufacturers’ organisation’s national manufacturing conference.

In an EEF survey, half the 300 companies polled said a government commitment to keep energy costs at, or below, the EU average would be the biggest single incentive for them to expand manufacturing in the UK.

The manufacturing PMI hit 56.9 in February, slightly up on the previous month’s 56.6. A reading above 50 indicates expansion. This chimes with a run of recent business surveys which suggest businesses intend for invest this year. It also showed rising employment in the manufacturing sector.

Simon Wells, chief UK economist at HSBC, said: “The strong employment reading is particularly interesting. The structural decline in manufacturing jobs has slowed since 2009. But manufacturing jobs in Q3 2013 were still barely higher than three years previously so we remain a long way off the sector contributing meaningfully to overall job creation.”

The car industry is one of the bright spots for UK manufacturing growth, as its output has increased by 50 per cent over the past four years. Britain built more than 1.5m cars in 2013, the first time that figure had been exceeded since 2007, according to the Society of Motor Manufacturers and Traders.

On Friday, consultancy Capital Economics suggested the West Midlands and southwest are likely to be the UK’s fast-growing regions due to investment from the car and aerospace industries respectively.

Mark Robertshaw, chief executive officer of Morgan Advanced Materials, a company which makes high-tech materials for use in products such as body armour, said manufacturers were starting to feel a “little more optimistic” overall.

“Europe is looking slightly better and other parts of the world are stable to slightly positive generally,” said Mr Robertshaw.

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