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Order books hit a 12-year high in the UK

16 March, 2007

The latest statistics for the UK manufacturing sector paint a mixed picture. On the one hand, two industry surveys show that order books for UK manufactured goods are at a 12-year high, and the manufacturing sector is growing at the fastest rate for nearly 2Ĺ years. On the other hand, official Government figures reveal that employment in the manufacturing sector has dipped below the three million mark, and that manufacturing output fell by 0.2% between December and January.

One indicator of a strengthening UK manufacturing sector comes from the Confederation of British Industryís monthly industrial trends survey which reports that a balance of 4% of manufacturers are reporting that their current order books are "above normal". This is the strongest figure since June 1995 and a marked improvement on the previous month, when a balance of 9% of manufacturers said that orders were below normal. (In the CBI reports, the balance is the difference between the percentage of manufacturers reporting an increase and those reporting a decrease.)

The CBIís figures are based on a survey of 681 manufacturers conducted between late January and mid-February. According to the survey, order books grew across all sectors, but were particularly strong in consumer goods.

To meet the increased orders, output volumes are expected to increase over the coming three months, with a balance of 28% of respondents forecasting growth. A balance of 19% of firms expect to put up their prices over the coming three months.

"In a climate of strengthening demand, businesses have finally been achieving some price rises and expect to continue doing so, helping to rebuild battered profit margins," says the CBIís head of economic analysis, Doug Godden. "Meanwhile, export orders are still doing well, despite the strong pound. Januaryís further interest rate rise does not seem to have slowed demand, though it will, of course, be several months before its effects fully feed through."

The second optimistic report, confirming a rebounding UK manufacturing sector, comes from the Chartered Institute of Purchasing and Supply, whose monthly survey reveals the nineteenth successive month of expansion. The CIPS says that strong export performance by manufacturers is allowing them to raise their prices.

According to the CIPS, purchasing managers are reporting strong levels of new orders, worker productivity and plant efficiency. "This has allowed companies to have the confidence to increase factory gate prices at their fastest rate since November 1999 and to increase staffing levels at the sharpest rate in almost two years," reports Roy Ayliffe, director of professional practice at the CIPS. "The rising costs of raw materials continue to have an impact, although purchasing managers report that the rate of input cost inflation has lowered from its peak in mid-2006."

In contrast to the CBI and CIPS surveys, the Governmentís official figures (published by the Office for National Statistics) are not quite as rosy. The ONS reports that, in the three months to January, there were 2.97 million jobs in UK manufacturing Ė down by 59,000 (around 2%) on the figure for the same period a year before. But at the same time, productivity rose by 4.7% compared to the same period a year ago, while manufacturing unit wage costs fell by 0.8%.

The ONS also reports that while output across the whole of UK manufacturing fell slightly (by 0.2%) between December and January, the machinery and equipment industries recorded a "significant" increase of 1.7% for the same period. And over a three-month period (November to January), manufacturing output was 2.3% higher than it was a year before.




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