Manufacturers finally kicking clear of recession

Britain's struggling manufacturing sector may finally have begun emerging from recession, new data revealed yesterday, with businesses reporting the strongest increase in new orders for six years.

The Chartered Institute of Purchasing & Supply's purchasing managers' index (PMI) reached 53.7 last month, up from 49.9 in September - a reading above 50 signals growth rather than contraction - one of its biggest rebounds.

The performance of the index, which is calculated on the basis of manufacturers' reports about their orders, production, employment and inventory, prompted a positive reaction from analysts.

David Noble, chief executive of CIPS, said: "Manufacturing has turned a corner and is starting to pull itself out of recession, though the sector has been so hard hit it will be a long time before it returns to its previous level."

The figures will buoy the Bank of England's Monetary Policy Committee, which begins its monthly two-day meeting tomorrow. The MPC is expected to announce a rise in the size of the bank's programme of quantitative easing after disappointing GDP figures announced in October, which revealed Britain remains in recession.

Colin Ellis, an economist at Daiwa Securities, said he still expects the quantitative easing programme to be extended from £175 billion ($397 billion) to £225 billion. Mr Ellis warned caution needed to be applied to the PMI data, because it had wrongly given more optimistic signals in recent months.

Howard Archer, an economist at IHS Global Insight, said manufacturers had received a genuine boost from the depreciation of sterling, which has aided exports, as well as the sharp reductions in stock levels they have already made.

However, Jeegar Kakkad, a senior economist at the EEF, the manufacturers' organisation, warned against complacency.

"The fourth quarter was always going to be better than the rest of the year, and with the fiscal stimulus set to be withdrawn in January, the dangers of a double dip are still very real," he said.

- INDEPENDENT