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UK manufacturers maintain positive mood in February

Cips/Markit manufacturing survey found the positive mood established in the first month of the year had continued into February, but a fall in new orders and sharp rise in inflation were causes for concern

Hopes that Britain will avoid a double dip recession were given a boost on Thursday after a survey of manufacturers found the positive mood established in the first month of the year had continued into February.

The Markit Purchasing Managers Index (PMI) survey of the manufacturing sector, conducted with the Chartered Institute of Purchasing & Supply (Cips), found the level of activity dipped from 52 to 51.2, but remained above the 50 mark that indicates whether the sector is growing or contracting.

However, a fall in new orders, amid evidence of strong headwinds from public sector cuts and recession in some eurozone countries is likely to cause concern.

Simon Wells, of HSBC, said, “anecdotal evidence from manufacturers report declining demand from mainland Europe, offset by rising exports to the US and Asia. Given that around half of UK exports go to Europe, this is a worrying development.”

Markit said the prospect of plentiful new orders had failed to materialise while inflation, largely a result of higher oil prices, was expected to eat into profit margins.

It said: “Inflows of total new work and export orders were both broadly unchanged following mild gains in January, while cost inflationary pressures rose sharply.

Although the rate of inflation was well below that seen a year ago, the turnaround in the trend was striking. The index tracking input prices posted its steepest month-on-month gain in over 19 years and the second sharpest in the survey history. Companies reported higher prices for chemicals, feedstocks, metals, oil, plastics and transportation,” it added.

Rob Dobson, senior economist at Markit and author of the Markit/Cips manufacturing PMI: “UK manufacturers continued to raise production and employment in February, building on the solid foundation seen so far at the start of 2012. This raises hopes that the sector will post an expansion over Q1 as a whole, or at least improve on the disappointing 0.9% contraction seen at the end of last year.

“However, the latest PMI survey brought the headwinds faced by manufacturers into sharper focus. Growth of new work from both domestic and overseas clients stagnated, with reports of weak demand from the eurozone offsetting new business wins in the US and Asia. Cost inflation also resurfaced, picking up sharply on the back of high oil prices and associated increases in the costs of chemicals, energy and transportation. If this combination of rising costs and weak demand persists, sustaining output growth and job creation will become increasingly difficult.” © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds